Negotiation Process in a Leading Public Sector Unit in India

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 Total 90 marks. 10 Marks for Class Participation. Final marks will be converted to 90 marks.

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Introduction is needed for each question.
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 Executive summary
 Table of content
 Introduction
 Body of assignment (questions related to case need to be answered)
 Conclusion / Recommendation if any
 References (in-text + citation) to be used.

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The penalties for plagiarism are:
 Deduction of marks,
 A mark of zero for the assignment or the unit, or
 Exclusion from the program.

Abstract
This case is about the negotiation process carried out by the chief procurement officer (CPO) of a leading public sector unit in India. When the company receives an order, the order is materialized by using electric equipment in large quantity. Due to changes in the business situation, the company realizes that it may not be possible to purchase the equipment that they require at the same price as before.

The company has two vendors from whom they buy this equipment. Both the vendors have similar manufacturing policies and same raw material suppliers. Additionally, both the vendors have gone through some management level changes. The CPO who is responsible for the purchase of the electric equipment has to conclude the deal with the vendors and obtain the best possible price which is closest to the amount they had previously paid the vendors.

Guidelines For Assignment

Aabid, the Chief Procurement Officer (CPO) of NMD Limited, a leading Public Sector Undertaking (PSU), in Navi Mumbai, was confused. NMD Limited, which had recently received an order for Electro Static Precipitator, was in requirement of a transformer which formed the central component of the order. The Chief Executive Officer (CEO) had insisted that the transformer be procured. Aabid had earlier purchased the transformer from one of NMD’s two vendors, Syskateck Industries and Tyco Technocorp, at a ‘dream price’. Aabid was unsure of being able to procure it again at the same price. He was expecting the price to have gone up by a minimum of 40 per cent. However, Aabid observed that the management at both Syskateck and Tyco had undergone changes in the recent past and therefore saw an opportunity to seal the procurement of the transformer at the lowest possible price. He invited suggestions from his team members to minimize the procurement price of the transformer.

Profile of NMD Limited
NMD Limited was an integrated power plant equipment manufacturer and one of the largest engineering and manufacturing companies of its kind in India, engaged in designing, engineering, manufacturing, constructing, testing, commissioning and servicing of a wide range of products and services. NMD catered to the core sectors of the economy, namely the power transmission industry, the transportation sector (railways), renewable energy, the oil & gas industry, and the defense sector, with over 180 product offerings to meet the needs of these sectors. The establishment of NMD Limited in 1964 brought about an upsurge in India’s heavy electrical equipment industry. Consistent performance in a highly competitive environment enabled NMD Limited to attain the coveted Maharatna status in 2013. Only companies with an investment ceiling ranging from ?10,000 million to ?50,000 million were awarded this prize.

 

The high-quality standards and reliability of NMD’s products and systems were an outcome of its strict adherence to international standards, through acquiring and adapting some of the best technologies from leading OEM companies in the world, coupled with indigenous technologies developed in their in-house R&D centres. Most of the manufacturing units and other entities of NMD had obtained accreditation from Quality Management Systems

 

Case Background
NMD had bagged an order for 250 electro static precipitators by quoting aggressively, as the engineering sector was down in the dumps. The transformer, being the heart of the recently obtained order, formed a good percentage of the total value. NMD had procured a similar component in the previous year from one of its two suppliers. NMD had an in-house manufacturing capability for the above discussed component. Information about its manufacturing option and procurement policy is shared below.

 

Manufacturing Option
In one of the divisions of NMD, spare capacity to manufacture the transformer was available. Sourcing the component from within would have led to capacity utilization at NMD. This was considered to be essential by the corporate management since the company was passing through a lean phase with a dearth of orders especially in the division where the transformer could be manufactured and assembled.

Although the technology available within the company was slightly outdated, it could still manufacture marketable products. While the item was made up of two discrete components that were hard-wired externally, there were suppliers in the market who could supply an integrated version (with the two components merged into one product). The high internal cost of manufacture, combined with its old design, led to a towering price of ?1.04 million per piece.

Procurement Policy
The procurement policies of NMD were limited as it happened to be a PSU. The company had a written document indicating unified purchasing policy which was followed across various divisions of the company. This procurement policy had its own advantages and disadvantages.