Case study – 2

Phoenix Company
The Phoenix manufacturing company produces hydraulic power units. One
of the most difficult items to manufacture is the hydraulic cylinder. The
cylinder is fabricated from a malleable iron casting. The housing is bored
and milled to close the tolerance and the slightest variation in either
material or machining means the total loss due to creation of scrap.
Machine cycle time on a typical housing is approximately 16 hours.
For many years, casting used to be purchased from the Cast Iron
Foundries, Baroda. Eight months ago, however, when its founder and
president, C.R.Patel, died, Cast Iron foundries announced that it was
discontinuing foundry operations. Phoenix now floated fresh open tenders.
The low bidder, at Rs.760/- a unit, was Kapoor foundry of Ludhiyana.
Kapoor was given a purchase order for the full 4000 units, with the
understanding that Phoenix approve first 100 units.
Within two weeks, the first 100 castings were received. They were
subjected to initial inspection and then dispatched to the shop floor. In the
words of shop floor supervisor, “they machined like butter” Kapoor
foundries was told to proceed with the entire order and given a four
months delivery schedule.
However, with the passage of time, problems began to develop in the shop.
Some hard castings had damaged the carbide tipped cutting tools. Also
cracks from casting porosity appear on newly machined surfaces and
slots. Although these defects were not present in all castings, they
occurred in a sufficient number to demand action. It was also felt that the
specifications be made tighter. All suppliers were to be notified
immediately about specification change.
Accordingly, the buyer contacted Kapoor and told him to stop the
production of castings to the old specification, advising that new
specifications were now being developed and would be issued within next
two days. To the buyer’s shock, he learned that Kapoor had completed all
4000 castings and shipping them in accordance with earlier planned
schedule. To meet the new procurement standard, it was obvious that
Kapoor would have to either scrap all the old castings and produce new
ones, or undergo an expensive process of re annealing to meet the
modified specifications.

Question – What steps should now Phoenix Company take?