Hindustan Chemicals Limited

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 July 1988 and the material had been immediately issued to him. 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
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Improving the effectiveness of a function in a large complex organization requires attention to the working of other inter' dependent departments related to that function and how the interface between these departments is managed. At Hindustan Chemicals Limited, there is an acute problem in the planning and procurement of engineering items. Within the materials department, the stores personnel feel alienated. The organizational members feel frustrated and powerless as they move from one crisis to another. The consultants who are invited to conduct a study present some facts as also some opinions and feelings of the relevant organizational actors. A task force of three members is constituted by the Chairman and Managing Director of the company to examine the report submitted by the consultants and suggest steps to improve the mutual functioning of the materials and user departments. S Ramnarayan is Professor of Organizational Behaviour at the Indian Institute of Management, Ahmedabad, and V Nilakant is Faculty Member, Department of Business Administration, University of Canterbury, New Zealand.

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we have lots of difficulties with the materials function." The consultants also discovered that there had, in fact, been a stock out 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 despatch 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 incom plete; 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." 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.

sales turnover in the year 1987-88 was Rs 570 crore and the total value of the materials consumed was approximately Rs 271 crore (see Exhibit 1 for the income statement and balance sheet of the year 198788). The number of employees in the corporation was 6,220.
The Materials Function

The materials department of Hindustan Chemicals Limited was involved in procurement of materials worth Rs 271 crore during 1987-88. The materials were of two broad types: Chemicals, fuels, lubricants, and packag ing 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 fluc tuations. The rest of the items had stable prices. The import component in this category was 17.3 per cent of the total pur chase 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 pricesabout 90 per cent could be bought off-the-shelf, while 10 per cent had to be tailor-made to the corporation's require ments. There was some difficulty obtaining spare parts for technologically 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 con sumables (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 are 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 conVikalpa

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 collaborators. The nine plants of the Company were all located in a town located 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 400 crore. The 44

stituted 55 per cent of the total number of the required items, and non-recoupable items,45 per cent. The salient features of the items purchased, issued, and in stock are given in Table 1. For details see Exhibit 2. 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 packaging items, but had shown about 6 to 8 per cent increase in engineering items. The Buying Process. The corporation had a manual of 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 41 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.

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 (total of 235 employees). Origin of the Materials Study. User departments had expressed dissatisfaction with the services of the materials department in different forms. They complained that the materials department was not at all responsive to their needs and this adversely affected their performance. 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 proposal. 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 folVol. 14, No. 2, April-June 1989

lowed 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 depart ments provided a rich source of data. The data 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 inten sity 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. Observations of people in the materials department at various work sites served to check perceptions and hypotheses about the organization of work and its conse quences on the materials department. Both the analysis of secondary sources and the observations served to validate the percep tions, opinions, and feelings of managers in the user and materials departments.

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 nonrecoupable 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

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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 here: The inevitable ageing of plants leading to breakdown of old equipment, setting up of new plants, and lack of coordination among user departments 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 in dents were pending with the materials department. It was estimated by the Management Services Department that 52 per cent of these indents may 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 man power, 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 per sonnel were relatively underloaded 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 ac tually delivered to the user departments. There had been occasional stock-outs in the stores with regard to some rather lowcost but high-demand items. These factors manifested themselves in in creasing dissatisfaction among user depart ments, lower credibility of the materials department, and a tendency of each depart ment to blame the other. Vol. 14, No. 2, April-June 1989

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 re quired. 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 man power and time in defending its working, with the result that these personnel were over-worked, became ineffective, and felt demoralized.

Some Aspects of the Problem

Some of the elements presented in Exhibit 5 have been analysed in 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 the Users

From the users' perspective, the following problems existed in the materials area: In the earlier days, the materials depart ment 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 ex cuse of inadequate manpower was raised in all the forums. The users were compelled to make a num ber of sub-optimal stopgap arrangements because of lack of materials. They main tained mini-stores without adequate space 47

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 be cause routine systems did not function ef fectively. 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 12-14 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 interper sonal 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 inor dinate delays in despatching purchase or ders.

If the materials are not issued for some time, the requirements will die down.
Alienation of the Stores Personnel

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. 48

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 in spite of 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 despatched 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 Vikalpa

with this problem by resorting to 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 despatch 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. There was no response to the two telegrams. 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 meanwhile, there was an angry note from the plant on 27.12.87, stating that the "plant production will stop unless the material was 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 folVol. 14, No. 2, April-June 1989

lowing points: The department had made a modest begin ning with the system of rate contracting (simplication of the buying process by fixing rates with approved suppliers for a certain time period). It had covered few items such as electrical bulbs and fixtures under rate contracts. They were handicapped due to inadequate infrastructural facilities such as tele phones. There were also not enough vehicles for materials movement. They required greater help from the En gineering Services Department in coor dinating the inflow of indents reducing variety, standardizing frequently used items, and monitoring the inflow of in dents 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 kg) and the delivery was required by 31.12.87. The indent was received in the materials department on 27.7.87. 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 50 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 49

$450. Ocean freight was, in fact, more expensive. The procurement officer also felt that ocean freight was problematic for other reasons: greater documentation involved and gre ater problems of collecting the material 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 directly raise the issue 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 playsafe attitude was also reinforced by the existing pattern of centralization of authority. Of course, it was also true that the higher management did 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 judgements were based on fragmented bits of information. When there is greater preference for writ ten forms of communication over verbal media of communication (such as face-toface 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 linear processes such as paper exchanges mainly guide decision making, and often decisions 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
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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) for examining the report and formulating specific short-term 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 it should be done, and who should do it.

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