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SYNOPSIS ITEM PARTICULARS REMARKS Name of Student AZAD KHAN Roll no of student Address for correspondence Telephone E-mail House no -9, Road no 1, Azad nagar,mango,Jamshedpur 9431972636,9931979860, [email protected] Name of Guide Designation Address G.D.Pandey Course Coordinator Room no 6,Rusi modi center,Jublee park road,Sakchi ,Jamshedpur Proposed title of project Supply Chain Management at USHA MARTIN Ltd.(Usha Alloys & Steel Division) Jamshedpur. Problem under study Process of procurement, Process of vendor evaluation, process and technique of inventory control, inventory movement. Scope The study will cover the introduction of the subject 1

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SYNOPSIS

ITEM PARTICULARS REMARKS

Name of Student AZAD KHAN

Roll no of student

Address for correspondenceTelephoneE-mail

House no -9, Road no 1,Azad nagar,mango,Jamshedpur9431972636,9931979860,[email protected]

Name of GuideDesignationAddress

G.D.PandeyCourse CoordinatorRoom no 6,Rusi modi center,Jublee park road,Sakchi ,Jamshedpur

Proposed title of project

Supply Chain Management at USHA MARTIN Ltd.(Usha Alloys & Steel Division) Jamshedpur.

Problem under study Process of procurement, Process of vendor evaluation, process and technique of inventory control, inventory movement.

Scope The study will cover the introduction of the subject and study of the systems prevailing at purchase, stores inventory management.1. Study of the methods of inventory control in BAAN.2.Inventory Carrying Cost3.Lead time under procurement

Brief background Usha martin ltd, (Usha Alloys & Steel Division) Jamshedpur. It located at Gamharia, Jamshedpur.1960 - The Company was incorporated as

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Usha Martin Black (Wire Ropes) Limited having its wire rope plant at Ranchi. The name was changed to Usha Martin Black Ltd. in 1979 and further changed to Usha Martin Industries Ltd.(UMIL) in 1983.

UMIL promoted Usha Alloy Steels Limited (UASL) for the manufacture of billets at Jamshedpur. UASL merged with UMIL in 1988.

A backward integration initiative, the Usha Alloys & Steels Division (UASD) at Jamshedpur is one of the largest amongst secondary steel manufacturers of specialty steel long products in India. With ISO 9002 certified facilities, UASD has pioneered the unique process of steel making through mini blast furnace-arc furnace route, which ensures superior quality of steel at a lower cost. UASD serves a range of industries like automobile, general engineering, fasteners, railways, defense and power.

Methodology 1.Primary data will be collected from books.

2. Secondary data will be collected by Consultation and discussions with various personnel.

Conclusion/ recommendation

This all the study may help the organization and improve the efficiency of Supply chain management.

Approved/Not approvedComments/Suggestion

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Objective, Scope and Coverage

Objective

The objective of this study is to critically examine the system of SCM at the Usha Martin Limited, Jamshedpur works, compare it with the other company and evaluate the effectiveness of the SCM.

Scope and Coverage

The scope is to study the system of Supply Chain Management at the Usha Martin Ltd, (UML).

The study will cover the introduction of the subject and the study of the systems prevailing of purchase, store, and Inventory and vendor management.

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Methodology:

The study will be carried out of the purchase and store department of UML Jamshedpur.

The various aspects of SCM including Purchase, Store and inventory will be studied and relevant data will be collected from various sources.

These available data will be analyzed with the help of various tools and techniques for the strength and weakness of the system.

Suitable suggestions and recommendations will be made in order to overcome the weakness of the system making it most effective.

Various tools and technique will be used for collection and analysis of data such as:

Consultation and discussion with various personnel.Logical and analytical conclusion.Graph, Chart etc.

Suitable suggestion and recommendation will be made to overcome the weakness of the system in order to enhance the effectiveness of the system

The data for non moving items which had not moved from 2005 onward will be collected from the books of record year wise for the last 8 years. The record available at UMI is for last 8 years only

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SUPPLY CHAIN MANAGEMENT

An Overview

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SUPPLY CHAIN MANAGEMENT

Supply Chain Management is defined as “The integration of Business processes from end Customer through the very first supplier that provide products, services and information that add value to the products and services for the customers”.

From the traditional approach of Materials Management as Supply Management, Purchasing or the Procurement as an isolated function, it has changed to the new approach to look at the complete system of Procurement, Logistics, Manufacture, Packaging, Warehousing, Marketing, Distribution and Supply to the End User - Customer in a very critical way evaluating the value addition at each stage. The whole system is termed as Supply Chain Management and the individual functions as the links of the whole chain.

Any business is the outcome of the value addition done by not only the end manufacturers, but also all its partners at every stage of movement and processing, including raw materials suppliers, transporters and dealers. A growing number of companies are using the term supply chain management to describe process whereby both internal and external units are forged together to bring low cost and high value performance to the customer.

The supply chain concept is related to the cycle time concept where the firms that develop a continuous flow of inventory system frequently do so with a limited number of primary accounts after using third party logistic. Support agencies innovation in transportation and streamlined regulations are accelerating product flow.

The changed global and free boundaries of markets feature the paradigm shift from the traditional business to the most challenging business scenario with the following challenges.

Rapid product introduction bringing new product to market in record low time.Focused market requiring customized design, packaging and service offering to meet varying customer requirements.

Quick response delivery – distributing sufficient product quantities to satisfy the needs of the customer demand as and when it occurs.

Expanded service linking innovative, valued added services with the product offerings.

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Innovative channels using minimal echelon store, direct delivery system to reach customers rapidly at low cost.

Why the Supply Chain Management?

SCM is the buzzword in today’s global market. Supply Chain Management is the top management’s priority for all industries, right from big business houses to small retailers, in today’s global scenario. Fierce competition is firing companies to respond to changes in the market quickly. This highlights the governing importance of SCM the managing skill availability, supplier relationship, new value added services and cost reduction.

We are now moving into an era where supply chains will compete with each other rather than being competition between products and marketing techniques alone to ensure that the right goods are available at right place at the right time, in right quantities and at the right cost.

First class products and brand power no longer guarantee success in the aggressive battles for market share. Thus, it is important to get closer to customer by understanding what they want, when they want it, where they want it and at what price they want it and responding more accurately to actual customers demand by minimizing the flow of material at every point in the pipeline. In addition, it is important to keep the inventory to a minimum in order to derive a competitive edge by giving better services through shorter cycle times.

The introduction of wide and varied product ranges and the growth of competitive pressure have been the deriving forces behind the development of logistic system in the global competitive environment. The challenge before us today is the control of the supplies that has grown in drastically.

In India SCM continues to be perceived as a law value added activity of managing transportation and warehousing. The Indian Corporate must think about the SCM from a strategic perspective rather than just an operational issue. Supply Chain Management is originally the most important operational area for businesses trying to increase profitability. It deals with cost reductions in both inward and outward movement of goods. SCM can also target costs in internal operations the actual processing of material on the shop floors. Here the issues are of Wastage, Defects and Fuel Consumption.

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Role of Supplier – Customer Team Work In SCM

The importance of supply chain can be gauged from the fact that logistics costs are in the range of 10-20% of countries GDP. Organizations are required to look beyond their four walls for collaboration and co-ordination with supply chain partners. Organization to highlight the effect and the benefits of the following five key dimensions to make supply chain integration a reality in today’s business environment.

Information integration, Work flow assimilation, Technology assimilation,

Synchronization and Trust

a) Information Integration

Information is the enabler of supply chain integration. Information integration refers to not only sharing of information among supply chain members but also exploiting the information, inventory status, capacity plans, production schedules, promotion plans, demand forecasts and demand schedules. Information integration is the most effective way to counter the problem of demand information distortion up and down the supply chain. Information distortion can arise from partners making use of local information to make demand forecasts and passing them into upstream partners making ordering decisions on local economic factors and constraints and gaming behaviors that exaggerate orders when there are perceived uncertainties in supply conditions. These conditions are amplified from one level to another in a supply chain – giving rise to “Bullwhip Effect”. The sole way to counter this is to have total transparency of demand information not just between immediate business partners but also across the entire supply chain.

b) Work flow co-ordination

Work flow co-ordination is the efficiency of order fulfillment processes for the products in the supply chain. It is the point at which the product goes from being pushed in anticipation of customer order, to being pulled by actual demand; also referred to as “Push Pull boundary” or the “Customer Order Decoupling Point”. The customer order decoupling point is the inflection point

where demand information and actual customer order exerts its influence on manufacturing. After orders are received, the product is pulled by demand preferably

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with speed and reliability needed to satisfy customer requirements. Streamlining work flow activities among supply chain partners is not possible without work flow coordination of a host of activities encompassing procurement, order execution, engineering change, design optimization and financial exchanges. What is important for organizations to achieve excellence is to adopt the logistics and supply chain model to balance the cost of holding inventories against the need to serve end-consumer quickly and reliably. Companies need to design the supply chain that makes the best economic sense for the product in terms of cost, quality, delivery and flexibility.

In business it was working together for many years from company distributor level relationship to supplier partnership companies those have been collaborating along their supply chain to reduce cost. Today concept of collaboration however has expanded to include sharing potentially strategic and tactical information among business partners, developing a joint plan of action and joint execution. Now the traditional concept has changed to integrated supply chain management. “Integrated supply chain management” focuses on optimizing processes across rather than merely within functions.

The supply chain is undergoing change in an era of unprecedented competition and demanding customer’s .The electronics and high technology industry is facing high fluctuation in demand, rapid obsolescence of high value inventory and decreasing product life cycle coupled with increasing demand for customized products and services. Now the concept is changed to ‘extended’ supply chain management that involves “Managing the flow of products and information from yours supplier’s supplier to your customer’s customer”.

c)Technology assimilation

The inevitability of business technology convergence and the enormous opportunity it offers to the business necessitates that the entire supply chain integration should be based on a platform of technology enabled network solution for sustained future prosperity. It is important to remember that a chain is only as strong as its weakest link. If one link locks the technology to keep pace with the rest of the technology enabled network, it escalates the total cost of logistics and supply chain transaction. Without a competitive response process, it will not be possible to meet the requirements of the target consumer demand function in terms of the form of the product, the place where the product is required and the time at which the product is required. The result is that the consumer becomes unhappy and the business suffers. As such, all of the supply chain partners bear the brunt of same degree.

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d) Synchronization:

Time has a negative impact on supply chain management. Firstly, time affects lead-time on overall inventory level. The goal of synchronization in supply chain integration is to develop production and delivery mechanism and processes than can produce and supply the goods to the actual end – user at the rate of demand for the smallest period manageable.

To meet this goal, supply chain partners have to change long established operating processes and behaviors. They have to adopt a counter initiative inventory management strategy and take a productive pull approach to put the inventory in motion.

e) The Trust Factor

The ability of cohesive integration based on trust and felicitated by systems and technologies between supply chain members will become the greatest source of competitive advantage. The catch lies in recognizing the fact that while most of the supply chains are chains as liner in nature the supply is non-linear. A complex network of links and nodes captures the non-linear nature of supply chain. With each node and linking for recognition and resources trust and cooperation is the big question mark. Trust is essential to the free and open flow of information needed to respond to the customers need at each point of interactions

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COMPANY PROFILE

USHA MARTIN LIMITED

Started in 1961 as a Wire Rope manufacturing company, today Usha Martin group is a $ 300 million entity with presence in all parts of the globe. Our product offerings include Wire Ropes, Wire Rods, Bright Bars, Round bars, Hexagonal Bars, Steel Wires, RCS, Flats, Jelly Filled Telephone Cables, Wire Drawing and Cable machinery.

We also have a presence in Telecoms Software, IT Services, Ropeways, Optical Fibre Cables and Print media. Our presence as the world's fourth largest manufacturer of wire and wire rope is substantiated by our continues growth and global presence. Our customer profile cuts across industries such as Elevator, Fishing, General Engineering, and Power sectors. One of the largest integrated specialty steel long product manufacturing in India, our mini blast furnace; arc furnace process route makes us one of the most cost competitive producers nationally. The product offerings include Bright Bars, Wire Rods and Straight Lengths in the following categories, Alloy Steel, Bearing Quality Steel, Electrode Quality Steel, Free Cutting Steel, High Carbon Steel, Low Carbon Steel and Spring Steel.

The Jelly filled Telephone Cables Division has two plants with a combined capacity of 9.4 MCKM. Our products include both Jelly Filled Telephone Cables and Optical Fiber Cables.

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(USHA ALLOYS & STEELS DIVISION) JAMSHEDPUR

Unit Profile

Usha Alloys & Steels Division (A unit of Usha Martin Ltd.), is a medium sized integrated Steel Plant, located at Gamharia, Adityapur, district Saraikela-Kharswan in the State of Jharkhand and is approximately 16 KM west of the Steel City of Jamshedpur. The plant is spread over 235 acres and is situated close to large deposits of iron ore, coal, and limestone in Metallurgical Belt of Jharkhand state. Usha Alloys & Steels Division (UASD) has facilities to manufacture Pig Iron, Steel Billets, Steel Wire rods, DRI, Cryogenic Oxygen, VPSA Oxygen, Lime and waste heat recovery power from off-take Blast Furnace & DRI Gas in addition to Coal Based Thermal Power Plant. Plant is going to expand its annual production capacity from 3,30,000 MT of steel product to 10,00,000 MT of steel product by year 2010.

UASD produces steel grades ranging from Low Carbon, Medium Carbon and High Carbon to Tool and Die steel and wire rods ranging from 5 mm to 25.4 mm. Wire rods from 5 mm to 16.5 mm diameters are produced through Block Route and from 14 mm to 25.4 mm diameter through Garret Route. Steel Wire Rods are produced at UASD for Automobile Industry, General Engineering Purpose, Fasteners application, and Railway component and for Defense and Power Sectors.

Present major manufacturing facilities are:

• Coal based direct reduced Iron production from one no Rotary Kiln with production capacity of 350 TPD.

• Mini Blast furnace, having an annual production capacity of 1,90,000 MT used to supply hot metal for steel making in EAF.

• The steel melting shop constitutes two nos. EAF of capacity 35 MT each, two continuous casting machine (one 2-strand bow type Beam-110x110sq.mm, 4mt. radius, & one 3-strand bow type Beam - 150 x 150 sq. mm, 6 meter radius), 3nos. Ladle Refining Furnace and one Vacuum degassing system (capacity 35 MT, vacuum level 0.5 TOR minimum, provision for VOD in future).

• 29 stand Morgardshammer state of the art WRM mill with H-V configuration and having a production capacity of 270,000 tones per annum

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Corporate Social Responsibility

Usha Martin has strongly believed in its social responsibility being an important part of business philosophy. The company has promoted Krishi Gram Vikash Kendra (KGVK), as its social arm to take appropriate initiatives in various areas which affect health, social life and economic well being of people for a period of over 35 years.

Presently, KGVK reaches out to about one lac households of tribal people and weaker sections of society in over 700 villages across 6 districts in the state of Jharkhand.

KGVK has been taking on various activities in basic health, hygiene and sanitation, education, women empowerment, community development, agriculture, integrated watershed development, micro enterprise development, capacity building and need based training to generate self employment and sustainable income for weaker sections of the society. During the year 2006-07, the company earned the prestigious TERI Corporate Social responsibility Award, 1st prize in recognition of corporate leadership for good corporate citizenship and sustainable initiatives amongst corporate with turnover above Rs 500 crs. The “Reduction of Low Birth Weight” project of KGVK, which was considered for the prize, has also been scaled by the Government of Jharkhand as part of the state’s health reforms. Wire and Wire Rope Division :

The ISO 9002 - Certified 80,000 MT / annum Manufacturing facilities at Ranchi established in 1960 is amongst the top ten wire rope producers in the world. Steel wire ropes manufactured by the division find wide applications in oil exploration, mining , elevators, fishing, construction, load transportation and general engineering sectors.

Cables Division:

This ISO 9001:2000 and ISO 14001 certified 6.5 MCKM manufacturing facility located at Ranchi (Eastern India) is a recipient of the Confederation of Indian Industries Award for sustained productivity and is one of the top five manufacturers of Copper Telecom Cables in India. State-of-the art equipment combined with technical expertise from KABEL RHEYDT (Formerly AEG KABLE), GERMANY.

Machinery Division:

This ISO 9002 unit located at Bangalore was set up in 1974 to manufacture wire drawing and allied machines. Over the years, the division has added a wide range of wire , wire rope and Cable machinery to its product range and is now the leader in this field in India, collaborated with internationally reputed firms like De-Angeli

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Industries SPA, Italy, Stumberger Maschinenfabrik,Germany,Hi-Draw MachinaryLtd, UK and Redaelli Techna Meccanica, Italy.

Usha Small Division:

This division offers technical excellence in material handling by manufacturing mechanical splicing equipment, civil construction equipment, die less crimping tools, lugs and fittings for joining of cables and conductors for the power sectors.

Rolling Mill Division:

An ISO 9002 division with technical collaboration with TOR-ISTEG Steel Corporation, Luxembourgh and manufacturing facility located at Agra ( North India), this unit is engaged in the manufacture of Re-informed Construction Steel under the brand name of “U-TOR”.

Usha Saim Steel Industries Public Company Limited.(USSIL)Thailand :

A subsidiary of the group, it manufactures wire and wire ropes and has an annul capacity of 30,000 MT.European Marine Management Company Limited.( EMMC):

Located at Aberdeen , UK, it specializes in providing services in connection with oil drilling and exploration activities. Manufactures and sells wire ropes and related services like chains, anchors and end terminations.Brunton Shaw UK Limited:

Acquired by the group in 2001, this subsidiary of the group has a state-of -the-art manufacturing facility at Nottinghamshire, UK for producing 12,000 MT per year of high end steel wire rope.

UM Cables Limited :

A wholly owned subsidiary of Usha Martin Group, located at Silvassa, Western India , manufactures PIJF Copper Telecom Cables and Optical Fiber Cables and has an annual capacity of 2.9 MCKM & 35000 RKM respectively.

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Usha Communications Technology :

Usha Communications Technology is a high end telecoms software products company and offers a range of solutions that cover the needs of the next generation communication providers, both emerging and established.

Usha Martin Infotech Ltd :

USOFT has been set up to focus on software application development and consultancy for telecoms technologies. It will work on emerging technologies such as WAP, Symbian and 3G. The development center is at Gurgaon, near New Delhi.

CERTIFICATION STATUS OF UMI TO ISO 9000 :

Certification to ISO 9002: 1987 : May 1994Re – Certification to ISO 9002: 1994 : May 19961st Re – Certification to ISO 9002: 1994 : May 19972nd Re- Certification to ISO 9002: 1994 : May 20003rd Re- Certification to ISO 9002: 1994 : May 2003Certification to ISO 9001: 2000 : Nov 2006Certification to ISO/TS 16949: 2002 : Sept 2007 valid upto 2010

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MISSION

We enrich lives:

We will do our best to provide quality and services which will improve the lifestyle of users.

Quality is our first priority:

Our aim to achieve customer satisfaction by producing quality products. No sale is good sale, unless is fulfills our customer's

expectation.

Our word is our bond:

Our dealers are our partners. We endeavor to practice this golden rule in all our relationship with others.

Integrity is our commitment:

The conduct of our company's affairs must be pursued in a manner that commands respect for honestly and integrity.

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VISION

Vision of Usha Martin Industries Ltd,

In our chosen business we shall retain market leadership and shall be globally competitive through customer orientation and excellence in

quality innovation and technology.

B.K.jhawar(Chairman)

Vision of Usha Alloys Steel Division

A green, clean and system based safe plant with zeal for continuous improvement to achieve productivity label, Quality standards and cost effective operation at per with international standard with full involvement of trained and self-motivated employees.

(PresidentWorks)

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Quality Policy

We at Usha Martin Ltd, Usha Alloys & Steel Division believe in achieving quality through continual improvement of system and process.

We continually endeavor to improve operational efficiency, productivity, and cost effectiveness adopting environmental friendly practices.

It is our policy to:

Produce and deliver a product to meet customer needs and expectation conforming to specifications delivery and regulatory provisions.

Effectively utilize potential contribution of suppliers through fair practices and technical leadership.

Involve employees through training motivation and empowerment.

Provide resources and create a safe and healthy work environment.

Cut down wasteful practices in the supply chain or in the manufacturing areas and further exploring ways to reduce variation in our products.

Somnath Guha Dr.P.bhattacharya(C.O.O) (Jt. Managing director)

T.P.M Policy

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It is our policy to adopt TPM with all employees’ participation to achieve zero failure, zero defects, and zero accident and create a workplace that is clean and pleasant.

B.K. Jhawar (Chairman)

Safety Policy

We at Usha Martin Ltd, integrated men steel plant, re-affirm our commitment toensure a safe and healthy environment in and around our factory by minimizing

adverse effect of our process and activities.

Dr.P.Bhattacharya(Jt.Managing Direct)

Human Resource Policy

It is our policy to bring competitive advantages to business through Human Resource by creating conductive environment to bring excellent work culture in plant with self-motivated employees. We shall strike to maximize productive efforts of employees through education and training, ethical adherence to business conduct, better quality of life and enhanced employee’s satisfaction.

INTRODUCTION OF PURCHAS

Introduction – Purchasing is the acquisition of needed goods and services at optimum cost from competent reliable sources. The purchase is a main activity in the

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area of materials management. It is the most important function in any organization. This place from where money goes out of the organization. It decides the profitability of the company. It is studied that one percent saved in the purchase function improves the profit of the company as mush as 2 to 3 percent.

An Example for the Expenditure Of Purchase On Materials

The companies and their expenditures for different areas of business.Expenses of the companies for the year 2002 -2003.

(Values in Rs. Millions)Sr No

Company Employees Purchase Other Total Purchased material % of total

1 Tata Motors 7204 57000 15326 79530 722 BPCL 6456 393649 83185 483290 813 Asian Paint 1065 8475 3556 13096 654 Raymond 16803 23926 55722 96451 255 Cipla 734 7155 3850 11739 616 Grasim 326 1204 2476 4006 307 L & T 6240 37110 48420 91770 408 HPCL 5474 443031 83755 532260 839 Bajaj Auto 2838 26883 13097 42819 6310 Tata Power 1440 24704 11611 37555 6511 Tata Chemicals 697 2599 10183 13479 1912 Hindalco 2228 23279 16187 41694 5613 Tata Steel 12553 13979 50176 76708 1814 ITC 3461 22484 65438 91383 25

We can see here that many company expenditure 50 to 75 % on materials. This means that this money goes out of organization. This percentage is very high. If materials Manager are sufficient then he can give profit of organization 2 to 5 %.

So we can draw inference that purchasing is a profit center.

METHODOLOGY OF EVALUTION OF PURCHASE DEPARTMENT

Cost – purchase comparison (Annual cost of purchasing department divided by the total value of purchase).

Cost per order (Total purchasing department cost divided by the number of Orders).

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Return on investment (Net saving per rupee spent on purchasing).

Quality Criteria (measured by number of rejects).

Quantity Criteria (Measured by downtime).

Price Criteria (Comparison with other, organization or standard price indexes).

FUNCTIONS OF PURCHASE DEPARTMENTThe purchase department has to carry out many functions. They are follows.

(1) ACTIVITIES FOR PLACEMENT OF ORDER

Analyzing quotations received from different Vendors.

Planning and scheduling purchases and deliveries of the items.

Issuing proper purchase order to the vendor.

Selecting capital equipments.

Negotiate prices with the Vendor before order placed.

To get the item at “right “price.

Checking and approving invoices.

(2) PURCHASE RECORDS:

For efficient purchasing it is highly essential to keep good record keeping. Generally purchasing departments have to maintain the records as follows.

Vendor Registration files. Telephone numbers, Addresses, List of Equipments, Delivery and quality records,

Closed purchase orders. The name of supplier, cost of item, purchase Order number, description of purchase,

Open purchase order, with status of all outer standing orders, it is attached with purchase requisition, purchase order, follow-up data.

Material Record: All major material or services that is purchased order. It shows the list of suppliers annual use price orders placed.

Material codes: From different angles

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Imported items records:

Different law codes of purchase: As sales tax, imported duties, excise and mode vat law.

(3) PURCHASE REPORTS:

The purchase department handles a major part of company money. So they have to release different types of reports at regular interval such as monthly, half yearly annually. The management has to take important decisions on the basis of these reports.

The budget to be made before the year starts for expenditure under different Heads.

Total expenditure done for different types of purchase.

Purchase value for major items.

Vendor performance report.

Inventory and consumption pattern of materials.

Pattern of market prices.

Development of new components for new products.

(4) SELECTION OF VENDORS

The important function of purchase department is the selection of the vendors for the regular required items. They undertake the activity as follows.

They investigate the parties.

Interview the salesman.

See the manufacturing, financial capability.

Put up the Vendor for the new orders in small way. Total quality management (TQM)

Past performance.

(5) MAINTAENANCE OF VENDOR RELATIONS.

An important part of purchasing is the maintenance of good relation with the Vendors. Good relations are based on mutual trust and confidence. These grow from dealing between buyer and seller over a period of time. Such goodwill helps the purchase

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department to achieve objectives of buying the right goods in terms of quality, quantity, time and place. The activities needed to achieve this objective include following.

Communication of essential and helpful information, design, specification, Standards, practices etc.

Communication of engineering changes and changes in specifications etc. Helping the Vendor in resolving quality problems. Developing methods for identifying the qualified Vendors. Reviewing the performance of the Vendor through Vendor rating.

(6) FORECASTING AND PLANING

Forecasting and planning is a also important part of purchase department.Well- run purchase department will anticipate needs of user department. That is so for number of items of at least regular use. Anticipating advance needs is one of important factor, which helps to do better job and achieve good results. In cases the buyer gets sufficient time to reduce the likely of rush orders. Once the need has been recognized, quantity must be accurately defined. An improperly or poorly defined need can be costly. If a purchase officer assumes responsibility for changing requisitions that he thinks are wrong, sooner or later he will make mistake. That will result in getting materials that the user department does not want or cannot be used.

(7) FIXING PRICE, CHECKING INVOICES.

The activity of fixing price is important. Equally true is the checking of invoices. That has to be done by purchase department. In some companies the accounts department does invoice checking. Even in the case also it is better than concerned buyer checks the invoices before the accounts department release payment. This is because it is part of a buyer’s responsibility see that this orders are accurately released and billed. In the case of errors, it is the buyer’s duty to contact the supplier in order to secure a correction or an adjustment. It is important that the supplier know that buyer is responsible to make payments.

Also purchase department is familiar with its terms and conditions, discussion and intentions in placing an order. It can detect problems. The buyer can manage corrective action before the invoice is paid.

In fact basically, the checking of invoices is an accounting procedure, which can be handled efficiently by the accounts department.

(8) INSPECTION

Inspection of incoming materials is closely related to the receiving activity. Receiving department checks the materials receipt for quantity. The inspection department checks for the quality. This may be done by production department or by the purchase

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department. The production department should inspect goods before they taken for production. The purchase department may tend to accept the inferior.

A close relationship is essential between the inspector and the buyer. This may be important in case of the rejection of a shipment, since the buyer is likely to be notified quickly and he can take corrective steps at once.

(9) OTHER FUNCTIONS

Studies and cost analysis and keep updated with developments outside the Company.

Monitoring and maintaining smooth movement of incoming materials.

Transporting arrangement.

Conduct Vendor rating and development of the Vendors financially and technologically.

Participating in the engineering function to decide “Make Buy or Import”.

Considering the cost reduction as our own concern and conducting Programs like Value analysis etc.

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PRINCIPLES OF PURCHASING

“To procure the goods of the right quality, in the right quantity, and at the right time, from the right supplier for the right price with right service at right place.”

Principle of purchasing can be called by “7” “Rs”. They are as follows.

(1) Buying the materials at right price: Purchasing material at right price is prime important job of the buyer. If 1 % reduction in the price of the item increases profit of the organization by 5%. It does not mean that price should be lowest.

(2) Buying materials of right quality: The buyer has to get the item of the proper quality. The bad quality of the item will be spoiling the product and will effect the company’s market share. The specifications of the item must be maintained by the vendor. The item should not be purchased at high quality material than required quality at higher price. That is not good job of purchase.

(3) In the right quantity: The buying materials means spending money. In no case extra material than exact quantity should be purchased. The extra material becomes extra inventory in the stores. In the project type of jobs the extra material has to be scraped. This is loss of company.

(4) At the right time: The material should arrive at the factory when required maintaining the schedule of the supply has to be Vendor’s responsibility. But the planner and buyer have to plan and follow up properly. Late arrival will obviously stop the production line and early arrival will add to inventory.

(5) From the right source: The supplier has to be proper for a given item. All care has to taken to select proper source. The money capacity, production capacity, skills and training of the operators, and management have to be thoroughly checked before placing the order. Also should see that supplier should be local and outside supplier for these materials. What will be better for this?

(6) At the right place: The material supply has to be ensured at right place. There should not be further moment of the material in the factory. Often in the “Just in time “ culture the supplier has to see that the items are supplied on the production line. When the factory is in factory is in multi -location the material of one group should not be delivered to other group.

(7) With right mode of transport: This is important part of logistics. Item has to be supplied by proper method of transport. The items, which are made in perfect methods, are found to be getting damaged badly in the transportation. The raw materials like steel have to transport by train boogies, and same way the very sensitive items like electronics materials moved by car transport.

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PURCHASE PROCEDURE

The procedure of purchase is show in the flow chart

Procedure in Purchase Function

26

Requirement from user Department (PR)

Send Enquiry to the Vendors (RFQ)

Receive the Quotation from Vendors

Tabulation

Negotiation

Inspection

Goods Receipt Note

Receiving

Follow up

Place the order

Rejection Memo

Payment Made

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Details of Process

Purchasing Cycle

Purchasing start with the need of particular material or equipment from the department

Some of the step for purchasing is as follows:

Purchase Requisition – It is used to request the purchase department to procure

materials, spare parts, equipments or services. PR is made into two copies one copy

sent to the Purchase department and another copy retained by the stores.

Purchase requisition provides some essential information these are as follows:

Indent No. And date

Department

Description of requirements

Part No. Or Stores code No.

Date when the material is required.

Date and signature of the indenter is necessary.

Source Selection – Purchase department select a supplier who’s supply the

particular material on the basis of their:

Technical capability

Manufacturing capability

Past performance

Financial strength

Total quality management (TQM)

Ethics.

Request for Quotation (RFQ) – After selection of supplier Purchase department

sent a request for quotation of selective supplier

Request for quotation include following information as follows:

1. A full description of materials

2. Name and address of supplier

3. Purchase orders No.

4. Due date of receiving quotation

5. How much quantity required.

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2) Receives the Quotation – From different supplier

Tabulation – Evaluate the quotation of different supplier on the basis of their Rate,

Terms & Condition, Payment Terms, and Mode of Transportation etc.

Negotiation - After evaluation call the supplier for Negotiation.

Negotiation is the way to get a fair value. For negotiation we must know what games

people play is and How to control.

Prepare for Negotiation:

When is the negotiation taking place

How much time we have

What issue we have and

What issue avoid.

Planning for Negotiation:

Understand our need:

1. What to Buy/ When to buy

2. What is time frame of delivery

3. Length of contract – it is one time or regular.

4. What is acceptable?

Understand their need:

What is their ranking in industry

What is their need for – Business share/ Profit

What is their interest – Is it Book order / Ship material

Do they serve competitor.

Place the Purchase Order - It is a written evidence of a Buyer and Supplier of the

Purchase of Goods or Services at an agreed price and delivery date.

The following information contains Purchase order these are as follows:

Purchase orders No. And date

Name and address of supplier

Supplier Quotation and Reference No.

Description of item

Terms & Condition

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Terms of Payment

Delivery date

Shipping instruction

Price both Unit & extension

Purchase order Acknowledgment – An extra copy of the purchase order is

provided to serve as an acknowledgment by the supplier. The supplier accepts the

purchase order usually by signing of acknowledgment copy.

Follow up – After purchase order has been issued and supplier has accepted the

order, the purchase department regular watches and follows up the supplier to

ensure that the deliveries are affected in time.

Receiving and Inspection – After receiving the material it is checked for quantity

with reference of purchase order, and inspection for quality the quality inspector

checked the materials.

Goods receipt Note (GRN) – It is issue after receiving and inspections the material,

this is issued by Receiving Section.

GRN is a certificate to Accounts department for Payment of Supplier.

Rejection Memo – In case of rejection receiving section prepares a Rejection

Memo.

Payment made -After every step is ok then payment will be done.

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About of Inventory

Inventory:

If everything that an organisation needs could be purchase immediately there would be no need to carry any stock. In an idle situation whatever materials are required for production or consumption could be purchased as need arise. Items purchased and used immediately do not constitute inventory. On the other hand, house wife who buys 5 kgs of meat and stores it in the refrigerator for use during the week, is holding inventory. Let us try to analyse what exactly the house wife is accomplishing by holding an inventory of 5 kgs of meat. The house wife is actually engaged in two distinct activities. These are, firstly, purchase of meat from the market and secondly, cooking the meat into a testy dish. If she does not keep any stock of meat, but buys and immediately cooks it, the two activities remain directly coupled. So much so, that if one day there is no meat available in the market, she cannot accomplish the coupled activity of cooking meat. In this situation, if she is holding an inventory of 5 kgs of meat, despite the non availability of meat in the market, she would be able to cook meat, drawing from her inventory of 5 kgs. of meat. In other words, what her inventory of 5 kgs of meat, does is to decouple the two connected activities of buying meat and cooking it. This decoupling is the primary functions of inventories. Similarly inventories of parts and components produced in house decouple the many individual machines and production processes from various sub assembly and assembly activities, and enable assembly lines to be operated without breakdown due to lack of parts/ components.

After the above discussion the word inventory immediately brings to one’s mind a stock of some kind of physical commodity. A little reflection would, however indicate that it need not always be a physical commodity. For example, currency is not a physical commodity but banks, hotels and such other establishments which cash, cheques/ traveler's cheques also need to maintain a stock of currency to meet then day’s withdrawals. A little extension would bring the working capital requirements of a company within the scope of the concept of inventory. Proceeding along these lines, plant capacity, storage space, a sales girl’s force in a department stores number of seats in an airliner etc could also be considered as inventories. Such considerations led Fred Hanssman to define an inventory as “An Idle resource of any kind, provided that such resource has economic value”.

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Basic inventory model:

The following figure shows a cistern full of water which is filled by a tap and emptied by drain plug. The water in the cistern represents inventory in a stock centre. The level of inventory is dependent on the uses or consumption pattern (Flow of water) through the drain. The inventory level depleted by use or consumption can be maintained by regulating the inflow from the tap. If the tap is left open and consumption takes place, the cistern will overflow leading to wastage. If the usage is too fast, the tap cannot maintain the desired level of water (Inventory).

Graphical depiction of inventory model :

The idle inventory model can be graphically depicted as shown below in the figure.

Cistern

Drain PlugUsage of Output

Source or Input

Tap

INVENTORY

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The graph depicts the inventory of stock level on the ‘Y’ axis and time on the ‘X’ axis. The diagonal line ‘LA’ represents consumption of inventory as time passes. Ideally a stock level ‘OL’ could be built to cater for consumption during the time period ‘OA’ (the lead time required for the next order to materialise). If the consumption is uniform and the lead time is fixed, as the inventory level reaches zero, the next order materializes and inventory level is back to L and so on. This situation rarely exists in real life. While the vertical lines OL, AL, BL etc represents increase in inventory at a single point of time, which is realistic, the diagonal line LA, LB, LC etc will rarely be straight lines but a series of zig – zag small diagonals between successive points of time. Because of its shape it is often called the “Saw-Toothed Curve”.

Need for Inventory : The entire process of procurement and holding of inventories is fraught with literally hundreds of uncertainties both internal and external to the organisation. Internally, uncertainty exists, with top management whose decisions affect procurement, with purchase department who have to deal with unreliable suppliers, unpredictable demands, long fluctuating lead times, failures in supply and rejections due to poor quality , with the users who indulge in hording and inflating demands mainly due to lack of confidence in the materials departments with the labour force who may affect smooth and regular production, with the machines and equipment used which are subject to breakdowns and shutdowns and a host of other reasons. Externally, uncertainties exists in the form of government regulations, quotas, licenses, taxes, availability of materials within and outside the country, suppliers who are beset with their own internal uncertain ties, the technological infrastructure of the country, political and socio economic factors, labour unrest, railway strikes, transporter strikes, natural calamity, international relations etc.

L

O A CB

L L

Stock Level

Time Periods

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All the above factors affect the procurement of materials either directly or indirectly and more and less dictate that organisations keep inventors. As these factors affect the buildup or depletion of inventory, the efforts of managing the inventory are directed towards achieving the ideal optimum inventory for maximum profit, minimum cost or maximum effectiveness of the oragnisations. This situation has led some people to call inventory as a necessary evil, necessary because of its decoupling functions as evil because of attendant cost.

Need for Inventory Control :

Increased specialization and sophisticated technology have brought with them a very large range of materials requirements. The larger the range, the greater the complexity and problems of inventory – problems of investments, procurement including imports, lead time, storage, accounting, shortages, stock outs, deterioration and obsolescence. Besides, in large oragnisations, each departments looks at inventory from its own point of view. The production department wants sufficient inventory at all times to enable long and continues production runs for achieving high rate of production at lower costs.

The sales department wants a good stock of finished products for ensuring maximum customer service. The finance departments may feel that inventories are locking up capitals which should be earning a return. Thus each department, although conscious of its own costs, may be unable to see the total cost.

It is, therefore apparent that an integrated approach for control for inventory is essential. Without proper control, the inventories have a tendency to grow beyond economic limits, tie up funds and increase the cost of maintenance or the carrying cost. At the same time, non availability of inventory involves the cost of stock- outs, reordering costs and additional transit cost. The central core of materials management is Inventory control.

Inventory control is a planned method of determining what to indent, when to indent, how much to indent and how much to stock, so that purchasing and storing costs are the lowest possible without affecting production, distribution, functional effectiveness.

Objectives of Inventory control :

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The primary objective of the inventory control is to make available stocks when required. The customer in question to whom the inventory is made available could be an outsider who pays for the goods he receives or an insider who uses the inventory that is in stores. For example who works across a retail shop asking for a particular brand of toothpaste, becomes a customer outside the organization and a productions who demands various raw and packaging materials required for production, becomes a customer inside the organization. In both the cases, one would like to have the material made available to him without any delay. A high level of service for making available these inventories on time could be defend and they could also be quantified and can become a standard for evaluation of efficient performance.

In order to increase the efficiency of making available these stocks in time, the tendency is to hold more and more stocks in stores. Extra stocks held and which are not useful could cost the organization heavily resulting in bankruptcy. That is why one has to strike a judicious balance between these two factors and hold adequate inventories. Any business firm exists to make profits and not just provide service. Hence, money invested in idle stocks could eat away the profits resulting in loss to the organization. Today we are hearing of Just –in- Time concepts which say that inventory be made available only when it is required. If one could turnover the inventory as much as possible, the profitability could increase, as inventory carrying costs could be as minimum as possible.

Factors influencing Inventory:Two fundamental questions which normally arise in inventory control are:

How much to buy at one time?

When to buy this quantity?

Four fundamental factors govern the answers to these questions:

Requirements broken down time –wise – This is based upon information from a sales forecast and the production schedule.

Quantity in stock or on order – This information is usually obtained from the stores stock ledger balances and the unfulfilled purchase orders.

Procurement time or lead time – This is the total length of time required to obtain the materials. It consists of two parts. The administrative lead time and the supplier’s lead time.

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Obsolescence – Consideration should always be given to the possibility of design changes or other factors which would make the material obsolete.

Impact on profitability

As will be seen from what has been stated earlier, holding inventory is often very expensive. More inventories mean more costs and this has a direct impact on the profitability of the organization.

Inventory Turn over

If a company keeps inventories equal to one month’s consumption, it means that the inventory turnover is twelve times i.e. the entire inventory is being used up and replaced twelve times a year. If it keeps six months inventories on an average, it means that the inventory turn over is two times.

The inventory turnover rate is a quick guide to the mileage obtained from money tide up in inventories. The method to calculate it is simple:

3) Value of inventory as per annual accounts as on 1st January = Rs. 12.40 Lacs As on 31st December of the same year = Rs. 17.16 Lacs

2. Average inventory holding during a year = Rs. 15.00 Lacs3. Material consumed in production during a year = Rs. 60.00 Lacs

2. Inventory Turnover rate = 60/15 = 4

Inventory turnover rate is closely connected with profitability as can be seen from the following example:

Company X Company Y Company Z

1. Cost of Sales Rs. 1 crore Rs. 1 crore Rs. 1 crore

2. Gross Profit @ 12.5 % Rs. 12.5 Lacs Rs. 12.5 Lacs Rs. 12.5 Lacs

3. Material Consumed Rs. 50 Lacks Rs. 50 Lacs Rs. 50 Lacs

4. Inventory Held

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- Months Consumption 1 Month 6 Months 12 Months - Inventory Turnover Rate 12 2 1

- Value of Inventory Held 50/12 50/2 50/1= Rs. 4.167 Lacs = Rs. 25 Lacs = Rs. 50

Lacs

5. Inventory carrying Cost@25% Rs. 4.167 * 25/100 Rs. 25*25/100 Rs.

50*25/100=Rs. 1.042 Lacs = Rs. 6.25 Lacs =

Rs. 12.5 Lacs

6. Net Profit Rs. 11.548 Lacs Rs. 6.25 Lacs Nil

The investment in a business is the money tied up in assets including inventories which are often one of the largest assets. Consequently reducing the amount of money tied up in inventories improves the return on assets even though the profit on the sales stays the same. The following illustration will show clearly how this happens.

Let us take a typical company A which had a sales turn over of Rs. 1.00 Crore in 1997 and earned a profit of 10.00 Lacs. The capital employed was Rs. 50 Lacs.

1. Percentage of Profit on Sales = Earning * 100/Sales Revenue= 10 Lacs * 100 / 100 Lacs = 10 %

2. Capital Employed = Rs. 50.00 Lacs

3. Turnover of Investment = 100 Lacs / 50 Lacs = 2

4. Percentage of Return on Investment= 10 * 2= 20 %

In the company found ways and means of reducing its inventories by Rs. 10.00 Lacs. The sales turnover and the profit were identical and so also profit on sales i.e. 10 %

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Capital Employed = Rs. 40.00 Lacs

Turnover Investment = Rs. 100 Lacs / 40 Lacs= 2.5

Percentage of return on investment = 10 * 2.5 = 25%

The above example will show how an increase in inventory turnover increases return on investment and increase in profit.

Study of the present

System

At

Usha Martin Ltd,

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SUPPLY CHAIN MANAGEMENT

38

Purchase Order by Customer

Registration of Customer P.O.

Sales Order Processing

Issue Delivery Order

Derivation of Bill of Materials

Requirement of Our Product

Identify The Need Of Customer

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Supply Chain: Customer Requirement and Material Planning in BaaN System

Identify Customer Need: A group of technical and techno- commercial people of marketing &

sales department visit customer’s plant and identifies their need based on their plant requirement.

Requirement of our Product : On analysis of customer requirement sales people visit customer and

shows their capability, competitiveness , certificates of previous supply, product catalogue etc. and if

necessary & feasible trial run may be arranged at customer premises .

P.O. By customer: If the customer satisfied with the test & trial they place a formal purchase order

in favor of UML.

Registration of Customer P.O. : On receipt of purchase order Management Information System

register the customer order in the sales order processing system with all relevant data and tech,

details.

Sales Order Processing: After registration of customer order into sales order system the materials-

planning department issue a delivery note. Prior to release delivery note system automatically checks

the stocks at different warehouses.

Derivation of BOM: Based on delivery order bill of materials requirement for the product with

quantities is prepared. Before preparing the same inventory stocks also checked.

Purchase Requisition: Based on BOM purchase requisition generated from the system with

specified quantity.

Materials Procurement: Purchase department on receipt of purchase requisition floats enquiry to

39

Issue Purchase Requisition

Materials Procurement

Manufacturing, Quality Inspection & Dispatch

Customer Feedback

Page 40: Pramod  project

the approved vendors, made comparative, negotiate and finally place the order. On receipt of

materials it inspected & tested prior to stacked for manufacturing.

Manufacturing, Inspection and Dispatch: It is the job of operation and quality control department

to manufacture the product as per quality norms mentioned. After quality control department

approve the material for dispatch, the logistics or dispatch wing do the necessary jobs for sending the

material to respective warehouse or customer.

Customer Feedback: Customers also sending their feedback regarding the performance of the materials.

ORGANISATION CHART (PURCHASE)

40

PRESEDENT (WORKS & MINES) CONTROLLER OF PURCHASE

Raw Materials

Dy G.M. PUR SR. MGR. PUR

Job/Works Coctracts Refractories Stores & Spares

Dy G.M.MAT

ASST OFFI.PUR

ASST.MGR.CUSTMGR.PUR

ASST OFFI.PUR

ASST MGR.PUR

PUR.ASST

Dy MGR.PUR MGR.PUR

PUR.OFFICER

MGR.PUR

PUR.OFFICER

PUR.ASST

ASST MGR.PUR

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Process of Purchasing at UMI

Purpose:

To ensure right quality in right cost at right time purchase of raw materials and services for making

the end products confirm to the specified requirements at optimum price.

Scope:

Purchasing of all items having direct bearing on the product quality.

Responsibility:

Overall Responsibility: Purchase Manager, Asst. Purchase Manager.

References:

ISO/TS: 16949 - 2002,

VARIOUS TYPES OF PURCHASES:

DRAWING ITEM PURCHASE

(1) Indent: The user raise an indent of material with drawing is needed to purchase. The indenter

sent indent with drawing to purchase department for procure the materials.

41

PUR.ASST

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(2) Procurement Action: Purchase Department floats enquiry to the approved vendors and ask

quotations.

(3) Quotations open in front of the “Tender Committee and get the tabulation done by Purchase Department. After tabulation, the files are sent to the User for their scrutiny and remarks, if it is needed for some technical clarification, otherwise, again the files are placed in the Tender Committee.

(4) The Tender Committee decides the action whether the file should be cleared on the basis of

lowest quotation received or the quoted parties should be called for negotiation. In case the parties

are called for negotiation, immediately parties are informed over phone/fax the negotiation date and

timing.

(5) After negotiation and final approval of Tender Committee, the purchase orders are released by

Purchase Department, and arrange for procurement of material.

Normally it takes minimum 15 days time and maximum 21 days time to internal lead time the order.

(6) In case of order placed for any type of Capital Expenditure Joint M.D approval is required.

(7) For out sourced activities similar tendering is carried out and once order is decided supplier is

provided with P.O. along with other documents like drawing etc.

(8) Delivery of Material: Purchase department clearly mentions /informs about the delivery of

material but in case the vendor fails in timely delivery the purchase department chase for the same

over phone/fax.

(9) Rejection of Material: In case the material supplied by vendor is rejected by our inspecting

authority the party has been informed immediately over phone/fax to replace the material and lift the

rejected material (within 7 days time).

EMERGENCY PURCHASE

In case of any emergency purchase is required, the user/ Indenter will talk to Asst Pur Manager, and

Asst Pur Manager, purchase the materials as this process

4) Cash purchase after competitive enquiry over phone if the material cost is up to Rs.25000/-

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5) Quotations over fax and in case of material cost is up to single quotation is sufficient and above

25000/- 2/3 quotations are required) immediate after getting approval of Present Purchase order

is released for immediate supply of material.

10)In case the required material was purchased recently (within 6 months time), we procure the

material after getting consent of supplier and amending the order, at the last quoted rate. Amendment

to order for any price revision/ quantity is released only after getting approval from Manager

Purchase.

CAPITAL ITEM PURCHASE

In case of purchase of Capital Items of any value a capex sanction is required duly approved by Joint

M.D in a stipulated format. To get approval from the Joint M.D, User department may floats enquiry

/ purchase department helps to collect quotations. After getting approval of concerned authority

User department raises indents and sent to purchase department with a copy of capex sanction report

for procurement action. Purchase department scrutinize, negotiate and release the order to arrange

for the material.

Key Responsibility for Procuring raw materials stores & spares Items:

Value System Approval

Up to Rs. 25000/- sealed tender Asst Pur Manager

Decided by tender committee

25001 to Rs.2.5 Lacs- sealed tender (Cost effective) Purchase Manager

By tender committee

Over 2.5 Lacs to no limit- sealed tender (Cost effective) President

By tender committee

Any Value (Capital Item) sealed tender Cost effective) Joint M.D

By tender committee

Quality Objective of Purchase Department

Quality Objective of Purchase Department have been defined as follow :

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Sl No Requirement` Actual Year07 - 08

Target Year 08 - 09

1 Timely availability of raw materials as per production plan 99 % 99 %

2 Availability of SIC items and to control stock out 4. % 3.%

3 Joint approval of total supplied quantity 2 Nos. 2 Nos

4 ISO certified suppliers of high critical items 18 Nos. 19 Nos

5 ISO certified suppliers of medium critical items 40 Nos. 60 Nos

PURCHASE PROCEDURE & ACTIVITY FLOW CHART

NO YES

44

Confirmed Indents,SIC Indent,Planning Item

Small Value/ One time Purchase

Cash Purchase

To Check & Review Item

Formal P.O

Preparation Of P.O

Floting Enquiries To Select Supplier

Making Comparative Statement

Receiving Offers

Selection Of Appropriate Source

Rate Contract

Negotiation with AppropriateSupplier & Order Finalisation

Release of P.O (Record In File)

Follow Up of P.O

Receipt of Materials at Stores

Signing of Order byAppropriate Authority

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YES NO

Vendor Management

Selection Of New vendor:

Objective -

Purchase transactions are made to procure different raw materials, consumables, capital plant and machinery spares parts as per specified quantity in purchase requisition, quality and within scheduled time of delivery and at right price. Sometimes it also become necessary to organize repairing and maintenance of machines and equipment in the from of annul maintenance contract (AMC). To expedite the job perfectly, it is first and foremost thing to a purchase executive to select the right vendor or supplier for the same.

In UMI prior to implementation of Baa N software system, new vendors are generally asked to furnish an introductory letter. By evaluating this introductory letter, new vendors are selected an inquiries are floated as per requirement.

Present Approach of vendor Selection in UMI: A flow chart is shown in next page.

3. Data Collection ( About Vendor):a) Based on information available through Internet, journals, periodicals etc.b) Experience of other user recommendation.c) Past performance data.d) Market survey.

4. Issue vendor assessment Questionnaires : It is a list of quarries asked to filled by vendor about their detailed address , contact phone no., credential, inspection and test facility, technically competency, technical person association, type of firm, sale tax registration, financial strength, turnover etc.

45

Inspection by Q.A (Incoming)

GRN Approved

Acceptance though Joint Approval

Matt. Rejection informationto Pur.Dept. for Replacement

On Receipt of Matt to Follow inspection procedure Again

Materials Stored

Acceptance

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5. Scrutinize Potentials: Based on the data supplied by vendor in vendor registration form a preliminary capability assessment is made.

6. Visit of vendor Premises : After scrutiny, if the potentials of vendor found satisfactory, a team of technical / techno-commercial and Q.C. people visit vendor premises for exact evaluation of vendor credibility, competency.

7. Request to send samples with T.C.

8. Sample testing by Q.C. department.

9. Test report & comment of Q.C. department

10. Check whether report is tally with T.C

11. If yes, Recommended Vendor

12. If no, Reject Vendor

13. Placement of Trial Order: A trial order is placed and vendor is asked to supply.

14. Check the quality: The Q.C department tests the supply of trial order and furnish inspection report.

15. If test report found meeting the quality then recommended for registration of vendor.

16. Otherwise rejected

17. Approve Vendor: Successful Vendors are approved by registration of a specific vendor code and enlisted in approved vendor list.

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FLOW CHART NEW VENDER SELECTION

1. Data Collection (About Vendor)

2. Issue Vendor Assessment Questionnaires

3 .Scrutinizing Vendor Potentials

4. Visit Vendor Premises

5. Request to Send Sample With T.C

6. Sample Testing (By Q.C Department)

7 .Test Report & Comment of Q. C

8. Check Whether Report is Tallying with T.C

Yes No

9. If yes, Recommend vendor

10. f no, Reject Vendor

11. Place Trial Order

47

1

8

2

3

4

5

6

7

10

11

9

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12. Check the quality

Yes 13. If Yes, Recommend Vendor for Registration

No

14. If No, Reject vendor

15. Approve Vendor for Registration

The existing suppliers as per approved supplier list are assessed periodically to judge their

performance over a period of one year. The decision is taken at the end of every calendar

year to retain or remove the vendor from approved list based on satisfactory or Un-

satisfactory Performance in that particular period of time.

Retention/removal of supplier from the approved list is done as per the following procedure.

A detailed item wise /vendor wise study is made per the

Supplier Rating Format .

Performance of each supplier is assessed by the following.

SR = (R – Q)/R*D* 100%

Where SR = Supplier rating.

R = Quantity received.

Q = Quantity rejected.

D = Delivery percentage.

Vendors are graded based on the above rating as follows :

Rating Grade

100% A

48

13

12

14

15

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80% to 99 % B

60% to 79 % C

59% to 20 % D

19 % to 1 % E

At end of every assessment year ‘D’ & ‘E’ class supplier are removed from approved

supplier list. ‘B’ & ‘C’ shall be intimated to improve on their quality by the purchase

department.

ISO – CERTIFIED VERDORS

Basis of Selection QA dept. has classified all items affecting product quality in three categories

based on criticality. Accordingly KEY suppliers identified.

Distribution of items DRI MBF SMS WRM Bar Mill Misc

34 14 197 151 22 45*

* Misc. items contains – Grinding wheel , Steel shots , Borox , Die etc.

Details Of KEY Suppliers

49

0

50

100

150

200

250Distribution of Items

DRI MBF SMS WRM Bar Mill Misc

No

of I

tem

s

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TARGET COMPLIANCE (AS ON DATE)

Nos. of key suppliers

High Critical

Medium Critical

LowCritical

High Critical

Medium Critical

LowCritical

181 19 60 100 18** 40 11

** M/s Kothari Trading is a trader for Ni , who has confirmed they are expecting to get the ISO

certification by end April - 08

Purchase Internal Lead Time at UMI

Sl No Type of Purchase Present Level Days

1 ARC Item Purchase 2

2 SIC Item Purchase 2

3 Drawing Item Purchase 15-21

4 Cash Purchase 2-18 hours

50

ARC ITEM SIC ITEM DRAWING ITEM

0

5

10

15

20

25Internal Lead Time

Type of Items

Lead

Tim

e da

ys

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MATERIALS CODIFICATION SYSTEM in BaaN at USHA MARTIN Ltd

3 9 6 0 3 9 0 1 1 Ledger Ledger Category Sub Category Item Serial

(1) : Ledger

(2 ) : Ledger Category

( 3 ) : Sub Category

( 4 ) : Item Serial

( 1 ) LEDGER : 1 – Denotes Raw Materials & Refractory.

: 2 – Denote Packing.

: 3 – Denote Spares Proprietary (for Identified area)

: 4 – Denote Spares ( for Common) eg. Bearing, V Belt.

: 5 – Denote Fuel.

: 6 – Imported Raw Materials.

: 7 - Dummy.

: 8 – Imported Spares.

: 9 – Imported Spares (Bearing)

(2) Ledger Category : 1 01 – Scraps .

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: 1 02 – Ferro Alloys.

: 1 03 – Fluxes.

: 1 04 – Iron Ore.

(3) Sub Category : 1 01 01 – Duty Paid.

: 1 01 02 – Non Duty Paid.

(4) Item Serial : 4 53 01 1265 – Hex Head Bolt M 12* 65.

: 1 02 00 0030 – Ferro Manganese low Carbon .

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Obsolete, Non-Moving Item & Value

Year Total Item Which not moved from

1/4/00 to 31/12/00(out of 20070)

(in no)

Total Item Value Which not moved

from 1/4/00 to 31/12/00

( Value in Rs )

Carrying Cost @ 25 % of total value Which not moved

from 1/4/00 to 31/12/00

( Value in Rs )

percentage

2000 4305 20217097.68 5054274.42

2001 625 19548140.92 4887035.23

2002 850 420740784.97 105185196.24

2003 868 11625520.22 2906380.06

Total 6648 472131543.8 118032885.95

Total Item In BaaN master

Till July 08

Stored Item & their value

Till 20/3/2008

Obsolete or Non-Moving Item & their

value ( Which not moved

Obsolete or Non-Moving Item

percentage of total stored item ( Which

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from 1/4/00 to 31/3/03 not moved from 1/4/00 to 31/12/03

52000 (Approx ) 20080 6648 33.10 %

1502828902.13 ( Rs) 472131543.8 ( Rs) 31.41 %

Obsolete , Non-Moving Item & Value

Year Total Item Which not moved from 1/4/00 to 31/4/03

(out of 20975(in no)

Total Item Value Which not moved

from 1/4/00 to 31/4/01

( Value in Rs )

Carrying Cost @ 25 % of total

value Which not moved

from 1/4/00 to 31/4/03

( Value in Rs )

percentage

2000-2001 5645 16407590.39 4101897.57

2001-2002 325 3415530.44 853882.61

2002-2003 456 3770757.51 942689.37

Total 6425 23593878.34 5898469.55

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2000-2001 2001-2002 2002-2003

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000Items Value Which Not Moved From

1/4/00 to 31/3/03

Item Value

Year

Val

ue o

f Ite

ms

(Val

ue in

Rs

)

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Tr -Year Item /Value GNR INS OBS Total

2000 - 2001 No of items 2992 1092 1556 5640

Value of items 5640682.59 8271362.74 2495545.06 16407590.39

2001 - 2002 No of items 222 52 49 323

Value of items 998233 1283732.4 1133564.24 3415530.44

2002 - 2003 No of items 341 70 44 455

Value of items 1724607.40 1559659.21 486491.26 3770757.5

55

2000-2001 2001-2002 2002-2003

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

Obsolete & Non-Moving Items and Value Year Wise

GNL

INS

OBS

Year

Val

ue o

f It

ems

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Obsolete & Non Moving Items Year Wise

Tr - Year Refractory Stores Spares

2000-2001 1771384.34 14602207.17

2001-2002 1261372.13 2154158.31

2002-2003 608033.58 2162723.93

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2000-2001 2001-2002 2002-2003

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000Obsolete & Non Moving Items Year

Wise

RefractoryStores-Spares

Year

Val

ue o

f Ite

ms

( V

alue

in R

s )

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Strength & Weakness of the System

1 - Vendor Selection

Purchase transactions are made to procure different raw materials, consumables, capital plant and machinery spares parts as per specified quantity in purchase requisition, quality and within scheduled time of delivery and at right price. Sometimes it also become necessary to organize repairing and maintenance of machines and equipment in the from of annul maintenance contract (AMC). To expedite the job perfectly, it is first and foremost thing to a purchase executive to select the right vendor or supplier for the same.

In UMI prior to implementation of Baa N software system, new vendors are generally asked to furnish an introductory letter. By evaluating this introductory letter, new vendors are selected an inquiries are floated as per requirement. Present Approach of vendor Selection in UMI:

18. Data Collection ( About Vendor):a) Based on information available through Internet, journals, periodicals etc.b) Experience of other user recommendation.c) Past performance data.d) Market survey.

19. Issue vendor assessment Questionnaires : It is a list of quarries asked to filled by vendor about their detailed address , contact phone no., credential, inspection and test facility, technically competency, technical person association, type of firm, sale tax registration, financial strength, turnover etc.

20. Scrutinize Potentials: Based on the data supplied by vendor in vendor registration form a preliminary capability assessment is made.

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21. Visit of vendor Premises : After scrutiny, if the potentials of vendor found satisfactory, a team of technical / techno-commercial and Q.C. people visit vendor premises for exact evaluation of vendor credibility, competency.

22. Request to send samples with T.C.

23. Sample testing by Q.C. department.

24. Test report & comment of Q.C. department

25. Check whether report is tally with T.C

26. If yes, Recommended Vendor

27. If no, Reject Vendor

28. Placement of Trial Order: A trial order is placed and vendor is asked to supply.

29. Check the quality: The Q.C department tests the supply of trial order and furnish inspection report.

30. If test report found meeting the quality then recommended for registration of vendor.

31. Otherwise rejected

32. Approve Vendor: Successful Vendors are approved by registration of a specific vendor code and enlisted in approved vendor list.

ADVANTAGES:

We can directly concentrate on the selected approved vendor.

Better knowledge about the vendor regarding potentials, technical competency, financial strength, Quality consciousness etc.

Better price and favorable purchase terms.

Ease of work with lesser inventory.

Healthy business relation

Disadvantage:

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It fails to answer all quires before selection of vendors / supplier.

It fails to assess the credential and capability of the vendor / supplier.

It fails to assess the financial strength and stability of the vendor / supplier.

It fails to answer manpower strength and technically sound people associated in – line ie technical competence.

It fails to depict Quality consciousness and infrastructure of inspection and test at vendor premises.

2 -Test Certificate not provided along with consignment

UMI generally face such type of problem of not getting test certificate along with consignment, basically with spare parts procurement and manufacturing items and that is why at the beginning of the purchase data analysis. The reason behind it is very simple as because, such spares can't be under gone destructive test for judgment of the grade or quality of supplied materials is as per our quality. Thus it is last option to quality inspector of quality control department to approve the spares. And also, the second most important and absolute need for ISO written down norms and quality standard.

Very often suppliers used to forget to enclose the required T.C, G.C and calibration certificate, as applicable. As the T.C not supplied by vendors along with consignment a Non Conformity Report (NCR) is generated and it closed only when the required T.C is submitted by vendor. Due to that the status of transaction of that particular purchase order is not get “completed” in BaaN software system. A back order quantity is always hunting unless this NCR is closed, even when the received material is virtually accepted as per required dimension or part no.

REVIEW REPORT :

The report generated by stores department for last three months (Jan 08 to March 08) number of cases where T. C or G. C & calibration certificate not received is 41; a copy of that report is enclosed in next page. After counseling vendors and implementing the corrective action this cases of failure reduced to 07,

3 -Non Moving & Obsolete Item

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There are many items which not moved from 8 years ( 1/4/00) but these materials are not obsolete declared by management and not have taken any decision by management . There

4 - Many Types of a Particular Items

There are many items, which they have many types of a particular item we found in stores as a nut- bolt, washers, gaskets, O-ring, etc. There are 100 to 200 types of particular items

Recommendation & Suggestion:

In view of the weakness mentioned earlier the following recommendations and suggestions are made to improve the over all efficiency of the organization.

1 Test Certificate

Counseling vendors and make convince to the need and importance of T.C along with consignment.

Incorporate in purchase order in bold letter with emphasis to submit the T.C along with consignment.

Remind vendor through letter at the time of issuing road permit for materials dispatch.

2 Non Moving & Obsolete Item

There are many items which not moved from 8 years ( 1/4/00) but these materials are not obsolete declared by management and not have taken any decision by management . There are much more money which are blocked and not working from 8 years and increasing inventory carrying cost. So management should have taken action some time ago and it should declare obsolete item and resale it.

3 Many Types of Particular Items

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There are many items, which they have many types of a particular item we found in stores as a nut- bolt, washers, gaskets, O-ring, etc. There are 100 to 200 types of particular items. So here appropriate standardization with concern engineering department for reduces many types of particular items.

4 Company may take help of any professional organizations like IIMM in these regards to have further studies in the state of affairs of the company and suggest suitable measures and plans.

Conclusion:

The study was an endeavor to critically understand the practical implication of the SCM at an industry. Though the industry is a small one as compared to many others companies at Jamshedpur, Such as Tata Steel, Tata Motor, etc it was quite an instructing experience to interact with the industry environment. There are transparent and clear objectives which one has to achieve.

The industry is one of very unique in nature and the findings may be applied to similar type of industries only.

At this stage I strongly fell that the area of SCM is so vast that the study may be conducted again and again focusing on various aspect of the SCM in order to gain effectiveness and efficiencies. I hope this project will prove as a turning point in my Materials Management Career.

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Bibliography:

1. Supply Chain Management by B.S. Sahay

2. The Management of business Logistics by John. J. Coyle.

3. Purchasing and Store keeping by S.D. Aphale.

4. IIMM monthly publication “The Materials Management “.

5. IIMM study materials.

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