CASE STUDY – UNFAMILIAR SITUATIONS

Note: This case-study has been written by a member of The EdgeMakers. Using this article for printing, publishing & training purposes (without due permission from Directors of The EdgeMakers) is strictly prohibited.

CASE STUDY – UNFAMILIAR SITUATIONS.
M.S. Kumaran (The EdgeMakers)

NAME OF THE COMPANY : RHINO AND WHALE (Fiction)
PROBLEM TO BE PROBED : GROWTH IN SALE WHILE DE-GROWTH IN
AND SOLVED PROFIT RATIO

The company has been making an average profit of 4.75 crore every year since, its inception on 1975. A multi national company which was dealing in manufacturing textiles having almost 25 branch offices allover India having its Head Office at Mumbai has been in the good books of the Industry, however, started showing some reversals, from 2000 onwards.

Although they were in the highly competitive market, the company has been doing good sales in view of its quality products. The company made a 10% increase in sale during 2000, when for the first time it faced a reduction in the profit to 3 crore.It revamped its sales machinery along with reviewing the cost structure at every level and strictly avoided any addition in that respect. During the year 2001, the company made another 10% increase in the sale, but, to their utter dismay the profit went down to 2 crore.

An in depth study was done at every level and at every department of the company to block all the loop holes, presumably which may eat into the profit ratio of the company. With renewed efforts the company made another 10% increase in sale during 2002, when again the profit showed a downward trend to 1 crore.

The management continued its efforts to find out the cause and brought in strict control on all its sleuths of money dispositions simultaneously registering another 10% increase in the sale. The company yet showed a gloomy picture of the financial results running for a crore of loss for the first time, in 2003.
Realizing the failure on the part of the company to locate the cause of the inversely proportionate profit structure, the company has decided to appoint a consultant to find out the real cause of the problem and the remedy for the same.

The solution:
The consultant has studied the problem and analyzed the various aspects connected with it and they have minimized the entire problem into a pointer, that is, ‘more sale and less profit’
They have divided the total team into mini ones and entrusted the job of visiting all the offices spread over along the country to collect various data and information in connection with their functioning and the modalities which they follow to bring in the sale.

They took almost one month to finish this job. It is imperative on the part of the consultant to complete the job within two months which the company on its own failed to solve for four years. In other words to achieve the target within the shortest time

They analyzed, discussed and debated on various points to pool the alternatives and evaluated certain conclusions after taking into account of various criteria and constrains.

They could observe a common feature in the collected data that every offices has got heavy closing stock in spite of the fact that the company followed a well-knit system of indenting stocks according to the orders booked. They could smell, now, the crux of the problem has to do something with the idle inventory which was held by the branch offices. They consulted the logistics department and gathered that they used to send unintended stocks, often to accommodate a full load on the truck whenever they send the goods. These unwanted stocks were kept aside by the offices and they got accumulated in accordance with such loads. These idle stocks actually cost heavy expenditure on the company for no returns which actually caused reduction in profit.
In other words there was this situation of ‘more sale, more loads and more idle stocks’

The consultants suggested a proper distribution system whereby each office received only what it wanted and that any additional stock is diverted to the needy office or to the factory for redistribution. The Branch offices ensured that they held only the required buffer stock and nothing more than that at any given time. The very next year company has started limping back to profit making and the consultant did their job for positive results.

Keynote points for discussion

Why there is an unfamiliar situation?
Which are the areas the company checked and failed to locate the problem?
What is the depth study the consultant has to prepare for?
How the analysis was done by the consultant and hypothesis formed
How did the consultant achieve the synthesis and then crack on the issue and
Finally arrived at the solution?

Case - Processing

Objective
Reverse the downward trend in the profit ratio of the company.
Assumptions
1. There should be no procedural or structural changes during the period.
2. There should be no policy changes financially or otherwise.
Pooling the alternative
Higher cost in administration, manufacturing or incidental expenses (1 & 3)
Changes in the discount or incentive structure. Involving heavy outflow of finance.(1&3 )
Increase in transportation cost on account of raw materials or finished goods or waste disposals.(1&3 )
Unnoticed wastage, if any, on the energy utilization, materials or labour at various levels (1&3)
Miscommunication or lack of communication vertically or laterally which has caused losses.(1&3)
Delay or denial, if any, on the part of various departments in policy implementation of the company(1&3)
System of Indent formulation , compilation and transmission to the Logistics
department (1, 2&3)
Lack of coordination between Logistics and Branch Offices on account of stock distribution(1,2&3)
Bottlenecks, if any, at the administrative level concerning sanctions and processing(1&2)
Idle Stocks held by various offices where the input cost s already incurred(1,2&3)

Evaluation Criteria
Studies done at Company level during the last four years need not to be repeated.
Fresh analysis and unexplored area functioning of any department.
Should be connected with financial aspects affecting the element of profit.

Final Evaluation/Solution
Lack of coordination of logistics with Branch offices on account of stock distribution
System of Indent compilation by Branch offices and their proper implementation
Idle stock held by various Branch offices where full cost input is incurred

Results
On the basis of the suggestions offered by the consultants the company has since, revamped the entire distribution system with immediate effect and reverted back to the original stature of earning and augmenting profits.