Lack of a robust process brings out chinks in your system in unpleasant ways. The incident below is a classic example of such a case.
Our company had a long history of relationship with our subcontractors and had a certain element of trust relationship with them. Quite often we took whatever they said at face value specially regarding the amount of material lying with them. There was no physical verification and hardly any checks/preventive measures built into the system.
We recently found that a subcontractor had been hoarding our material and selling it off in the open market. It took an enterprising individual to catch the subcontractor red handed.
Mr. X was in charge of subcontracting. While there was no conclusive evidence against X of being hand in gloves with the erring subcontractor we didn’t initiate any legal recourse against him. But we had to let him go.
People in our company incorrectly assumed that the reason for our action was him being corrupt. My contention is maybe he was BUT maybe he was not!
The reason for his dismissal was not based on him being corrupt, it was based on his lack of diligence in such a responsible role. He had failed in his duties towards the company. As a professional he was totally in control of all subcontracting work and was expected to keep track of flow of all materials within and outside the factory. He was not only unable to bring such a discrepancy in our system to our notice but also tried to blame someone else for the faux pas!!
As one amongst the management, i admit, we are to blame too for not having a system in place to prevent this incident. As a learning we have come up with the following points.
1. List Of Pending Materials
This list should come out as frequently as possible and can be used quite effectively for follow-up. This seems commonsense but for a small company even this was unheard of until now!
2. Physical Audit
Conduct a physical verification of materials lying with the subcontractors on a quarterly basis. The audit should be conducted randomly once a month without announcement.
3. Get Them To Specialize
Restrict subcontractors to two or three type of jobs and if possible with two or three customers. This will help us in multiple ways,
- They get to be experts in their allotted job-work.
- Improvement in quality as we can goad them into buying the appropriate measuring instruments.
- We know immediately who is handling what at any given point in time just by the job and customer.
4. Push Not Pull
update: We had to junk this idea as it increases inventory.
(Not to be confused with the push-pull system in marketing)
Send across the jobs to the subcontractors instead they coming in to take away materials. This would be difficult to implement on an existing system, but the benefits are obvious.
- Nobody gets to hoard thus doing away with one more inefficiency.
- We decide the flow of materials. Will also help us put in taps to decrease/increase flow as we wish!
- There is very little scope of any influence of our subcontracting in-charge by our subcontractors.
Get them to sign each time as a sign of receipt of material. This will also act as a proof and will also be the pending list(on a given date) as mentioned earlier!!
5. Improve Ties
While a system can be improved and rebuilt over and over again, the foundation of any business relationship is trust from both the parties and trust alone will stand in good in the long run.
This list is not exhaustive and is a work in progress for the time being. Any suggestions or ideas are always welcome at mailme@REMOVET-THISsachingopal.com