These are designed to elaborate on the problem identification, conceptualization and trouble shooting skills that DMS possesses and not to highlight management or administration lacunae of Clients.

INTEGRATED KINETIC FINANCE LIMITED, CHENNAI
(Renamed Kinetic Finance Limited, Pune)

Mr. Suresh took over the operations in 1994 with Mrs. Rajeshwari to assist him. Some of the significant tasks executed were :

•  Recruited personnel to manage the increased disbursement.

•. Fixed job responsibility and targets for each employee.

•  Bank reconciliation and related controls put into place.

•  Reviewed and modified software programs to give customer-wise dues and bounced cheques status.

•  Hired a legal team to file cases against defaulting parties.

•  Co-ordinated with rating agency CARE to obtain credit rating.

•  Pre-paid securitization loans obtained from Countrywide, which were found to carry an interest of more than 40%.

•  Put into place a stringent credit evaluation system.

The company's operations stabilised over the period of 12 months with defaulting cases coming under control.

At this stage, the Kinetic Group, which was interested in buying over NBFC, took over the management by buying out the MRF Group. The company's name was changed to Kinetic Finance Limited and the headquarters shifted to Pune.

MS handled the transition phase as caretakers to the Kinetic Group.

Manufacturer of paints, varnishes and lacquers for various applications including automobiles, furniture, buildings and industrial components.

Despite operating for 15 years and building up a well-known brand ` SUNRISE ', the company was making marginal profits. The management wanted an external agency to review the situation and recommend whether to close down the business or continue with the problem resolved.

DMS' analysis of the situation showed that at the lower end of the market, a number of small, local manufacturers were operating due to which price realisation was very low. In this segment of the market, selling price and dealers' recommendation were the two most important buying criteria.

Aakar Paints employed an inaccurate method of product costing where overheads were taken as a percentage of material cost across all products. Due to this, product pricing was found to be skewed – either significantly lower or higher than competition.

DMS reworked the pricing of each product apportioning overheads based on manufacturing time involved. Products that management felt could not compete at these reworked prices were recommended to be dropped from the product range and resources focussed on the remaining and new products.

Profitability improved immediately, leading to the company extending its operations aggressively to Kerala, Andhra Pradesh and Madhya Pradesh.

INDIA NIPPON ELECTRICALS LIMITED, HOSUR

INEL is a joint venture between the TVS Group and Kokusani Denki of Japan , a leading automobile components manufacturer. INEL manufactures electrical components for two and three wheelers such as TVS Suzuki, Kinetic Engineering, Hero Honda and Shriram Honda.

INEL is the market leader in its industry with very healthy profits. Even in years of recession in the automobile industry, it was able to declare bonus.

The Management was deeply concerned with the following two issues.

•  There was a significant difference between the figures of actual material consumption and those shown in the MIS reports. Actual consumption was much lower than MIS figures ; since material costs were about 75% of the ex-factory price for each product, the difference in value terms was alarming.

•  There were doubts about the authencity of the debtors' outstandings as revealed in the customers' ledger as well as the increase in the payments outstanding, disproportionate with rise in turnover.

•  A study of the inventory valuations followed by INEL for MIS vs. Books showed a stark difference. In the MIS reports, materials issued were valued on LIFO basis whereas in the books, closing stock was valued on LIFO basis while material issues werepriced on FIFO basis. Since a substantial portion of materials were being imported, price fluctuations due to factors like currency exchange rates were high from consignment to consignment. Further, inaccurate accounting practices in areas such as material and product rejects, added to the variance.

DMS also developed a fresh documentation system for material issues and accounting so that the problem was eliminated.

•  DMS found that the customers' ledger extract taken from the Marketing Department was different from that of the Accounting Department.

Though identical information was imported from the master software by both departments, certain changes made at the department level were not communicated to the other department. Since reconciliation was done annually, at the time of statutory audit, the variance in figures between these departments became very large.

On the outstandings payment front, the Marketing Department was focussed on booking fresh orders without paying sufficient heed to collection of outstandings. Since communication between the Marketing and Accounting Departments was inefficient, the situation began to go out of control.

DMS developed a fresh documentation system to overcome these drawbacks. Activities like memo acknowledgements, collection forecasts, inter-department meetings and incentives for good practices were put into place.

Further the master software, which was developed several years ago was studied and recommendations made to plug the loopholes as well as cater to changes in operations.

The management of INEL has accepted and implemented the recommendations.

DMS' study revealed that Computer Skills had invested heavily in imported machinery with various machines having different capacities and features, the critical ones being set-up time and running speed. The shop floor did not follow an analytical method of matching each job to the machine best suited for the purpose but utilized whichever machine was available at that point in time.

Pricing of orders was usually done based on offers received by the client from competitors, rather than on a scientific basis. This resulted in unsatisfactory margins in many cases.

The third area of concern was in the huge working capital employed by the company owing to large stocks of raw material and poor payment collection.

Over a period of 18 months, DMS recommended and implemented the following solutions.

•  Scientific matching of jobs to machines taking into account the various parameters involved.

•  Centralized job pricing to achieve a minimum return on each job, failing which the order was not undertaken .

•  Reduction of working capital required by reorganizing the purchase system and improving financial discipline.

After implementing the above recommendations, Computer Skills found its profitability rise dramatically and its capital employed settling to acceptable levels.

Further to this, the company has now set up a new project in Gujarat to reproduce compact discs, demonstrating confidence in its first venture.

CITIBANK, MUMBAI

The client accepted the recommendations and negotiated with Citibank to become a collection agent for credit cards and periodically purchase NPAs.