project updated 1

REDUCING THE LEAD TIME DURING THE PROCUREMENT

PROCESS OF TATA STEEL COMPANY

A PROJECT REPORT

Submitted by

SUSHMITA GHOSH

In partial fulfilment for the award of degree

of

POST GRADUATE DIPLOMA OF MANAGEMENT

In

OPERATIONS

AT

INSTITUTE FOR FUTURE EDUCATION, ENTREPRENEURSHIP AND

LEADERSHIP

Off Karla Phata, Ekveera Devi Gramasthan Road, Gut No- 178, Village-Karla, Taluka-

Maval, Dist- Pune, India.

July 2014

INSTITUTE FOR FUTURE EDUCATION,

ENTREPRENEURSHIP AND LEADERSHIP

BONAFIDE CERTIFICATE

Certified that this project report “REDUCING THE LEAD TIME DURING

THE PROCUREMENT PROCESS OF A COMPANY” the bonafide work of

“SUSHMITA GHOSH” who carried out the project work under my supervision.

Prof. Sachin Modgil Wing Commander Sudhir Salunkhe

ACADEMIC SUPRIVISOR DEAN

Prof. Sachin Modgil

COURSE CORDINATOR

CONTENTS

ABSTRACT......................................................................................................................5

ACKNOWLEDGEMENT....................................................................................................6

INTRODUCTION..............................................................................................................7

PROJECT STRUCTURE.....................................................................................................8

WORK FLOW OF CURRENT PROCUREMENT PROCESS...................................................9

TIME STUDY OF CURRENT PROCUREMENT PROCESS..................................................11

STATISTICAL ANALYSIS FOR REDUCING THE LEAD TIME.............................................18

ROLE OF STRATEGIC SOURCING IN REDUCING THE LEAD TIME..................................34

IMPACT OF REDUCING THE LEAD TIME BENEFITING THE ORGANISATION.................38

SIGNIFICANCE OF REDUCING THE LEAD TIME FOR A COMPANY................................42

STANTARD CLAUSES FOR SUPPLY OF EQUIPMENTS....................................................46

STANDARD CLAUSES FOR SITE SERVICES.....................................................................52

CONCLUSION...............................................................................................................59

SUMMER INTERNSHIP PROJECT 2014 4

ABSTRACT

The project mainly deals with the initiative of reducing the lead time during the procurement process

for the progress of the company. Procurement and the purchasing management is actually the most

time consuming procedure in the whole supply chain where there is a huge scope to reduce the lead

time and total cost eliminating the complexities derived from the process. Reduction in procurement

can strategize the overall working process which could help to rebuild new improved beneficial

programs involving a growth perspective. There are a number of non value added activities and

complexities for which there are even different effective measures to address it. Strategic sourcing

also has played an important role to analyse and address the challenge s and overcome it in an

effective way. Therefore, the results can be immense and leads an organisation to achieve a

competitive advantage in the market place.


ACKNOWLEDGEMENT

A summer internship project plays a very important role in a fresher’s career. I consider

myself to be the luckiest person to get a golden opportunity to carry on my summer

internship in the most renowned organization, Tata Steel Company, Jamshedpur.

This project has immensely contributed to self development and

knowledge. Therefore, I wish to express my deepest sense of gratitude to Mr. Neeraj Jha,

Senior Manager of the Engineering Department, who in spite of being so busy in his daily

schedule, has contributed and given most of his time and taken keen interest in guiding

and getting me on the correct path throughout the whole project scenario.

I would even like to thank Mr. C P Sharan, Senior Project Manager of the

engineering Department, along with the collaboration of Mr. Shailendra Kr. Yadav,

Manager of Planning and Budgeting who had been making me aware of the difficult

technical terms and of the company’s working schedule.

Moreover, it was so great to have such wonderful people around helping me

throughout the whole journey of my project.

Last but not the least, I would like to thank Tata Steel Company for

providing me this wonderful opportunity to learn and grow.

Date: 15.7.2014 Sushmita Ghosh PGDM(2013-2015)

Place: Jamshedpur Ifeel Management Education


INTRODUCTION

One of the most important and efficient way to achieve a competitive edge for a company is

reduction of lead time. Reducing lead time period between the initiation of a production of a

new product or an up gradation of an existing product up till the product has fully been

manufactured to be transported. It would not only help to reduce the wastage of time and

resources but also ensures improved quality and delivery at a proper stipulated time period

involving the value added activities.

There are mainly two types of lead times, procurement lead time and manufacturing

lead time.

Procurement process is mainly based on competitive bidding to select the lower

bidding supplier. This process further includes fierce bargaining where the purchaser tries to

bargain and convince the suppliers to adopt a similar strategy in a very low reasonable price.

The Commercial discussion and price negotiation takes a huge amount of time to process

until the time of the placement of purchase order which adds to the greatest areas for

further improvement

There has been observed a traditional approach for the delivery of the project

focussing upon the transformation concept of production or converting specifications to

products, without the consideration of work flow and value concepts , which actually needs a

much wider approach.

This project will mainly deal with the proper understanding of the general

procedure carrying out the procurement, planning and scheduling areas of the company and

the study of the various aspects and scopes needed to reduce costs and variability in the

process. Moreover, lead time reduction appears to benefit all members of supply chains, but

yet, why are we not able to radically reduce it?


PROJECT STRUCTURE

Part A: Mapping of the current processes and their efficiency levels.

Purpose –

1.) To study the current procurement process in a flowchart form in brief.

2.) To study the general terms and condition of the procurement process.

3.) To study how strategic sourcing can be a great help in the whole procurement process for

reducing the lead time.

Part B: Study of most time consuming processes and their impact over the production.

Purpose:

1.) To study which is the most time consuming process in the whole Project Procurement

process.

2.) To study the main causes of long lead time.

3.) To study the significance of reducing the lead time for a company.

4.) To study the effective measures for reducing the lead time during the procurement

process.

5.) To study the impact of reducing the lead time over the procurement process for a

company.

6.) To calculate the chi square test for the observed and expected values received and activity

based costing for getting the overall time and cost consumption.


WORK FLOW OF CURRENT PROCUREMENT PROCESS

SUMMER INTERNSHIP PROJECT 2014

Prepare Requirement Of Common Consumption Items For Growth Projects. Projects Through MRO/M Junction/ Project Procurement As The Case May Be.

Linkage MRO Process( Other Dept of Tata Steel)

Receives Final Vendor Panel And Reviews If Needed

Issuance Of Enquiry(Issuance Of Enquiry By Consultant For Growth Project)

Receipts Of Bids

Commercial Discussions And Price Negotiation And Finalisation Of Terms And Conditions

Offer Complete And Acceptable w.r.t Technical And Commercial Aspects

Final Price Negotiation By Project Procurement And Project Manager With Vendor

Release PR In System

Check And Release Order In System(Send Copy Of Order To The Vendor)

9


Acknowledge Receipt Of PO And Seek Clarification(if in case of foreign orders)

Furnish Clarification

10

TIME STUDY OF THE CURRENT PROCUREMENT

PROCESS

To map the efficiency of the current procurement practise, it was very necessary for me to do a time

study to analyse how much time is actually consumed by each process step by step and which is the most

time consuming process, i.e., the conceptualisation & Preparation of specifications, issuance of bids,

receipts of bids, Commercial discussion and negotiation process, and final price negotiation by the project

procurement.

CONCEPTUALISATION AND REVIEW OF COMMON CONSUMPTION ITEMS:

The initiation process of project procurement is the procuring the

common consumption items reviewing the requirements of materials for further usage

purposes. The process is formerly known as conceptualisation and preparation of specification.

Conceptualisation therefore, includes implementation strategy, packaging for ordering, PERT

charts, review mechanism which is further preceded by the preparation and review of techno-

commercial specifications and finalisation of list of vendor. Thus, the whole process of

procuring consumption techniques and items including PERT charts, implementation strategy

and techno-commercial specifications layout drawings takes around 30 days for processing.

ISSUANCE OF ENQUIRY:

The next process involves the issuance of the enquiry. Enquiry is

issued along with the Technical and commercial specifications to vendors. Vendors are advised

to submit their bids by a specified time. Issuance of enquiry takes around 10 days for

processing.

RECEIPTS OF BIDS:

The third process was the receipts of bids.


After the issuance of enquiry is made, request for the submission of bids is allowed along with

the approval of Project Manager. This request consists of some estimated time period which

can be 15 days. In case the number of bids submitted are not adequate, then the date is

extended panel of vendors is increased after due assessment. This is done without opening of

the price bid.

COMMERCIAL DISCUSSION AND PRICE NEGOTIATION:

After the bids are evaluated, technical and commercial offers are

scrutinized and list of deviation are prepared. These vendors are thus called for discussions

upon the list of deviations and convince the suppliers to adopt a similar convenient strategy as

per specifications and requirements of the company. Vendors submitting the bids are opened

and evaluated by the Project Manager.

OFFER COMPLETE AND ACCEPTABLE (TECHNICAL AND COMMERCIAL ASPECTS):

After the bids are properly examined by the Project

Procurement, the list of deviations are being discussed and negotiated. Price bids are then

opened only after the finalisation of all technical scope and commercial terms and conditions.

Price offers are then forwarded to Project Manager for evaluation. This process takes around 3

days for processing.

FINAL PRICE NEGOTIATION BY PROJECT PROCUREMENT AND PROJECT

MANAGER WITH VENDOR:

The tabulation of bids is prepared and vendors are called for

discussion and price negotiation of prices if required.

The process of negotiation is carried out till the

reasonably acceptable price is achieved which is being led by Project Procurement. Thus, the

negotiation process takes around 7 days for processing.


RELEASE PR IN SYSTEM:

After the unique material code (UMC) is centrally

created in the Lotus Notes at Planning and Budgeting Department, the draft purchase

requisition (PR) is created in the SAP system by the consultant. The draft PR is checked and

approved by the Project Manager for release by Project Manager for release by Project

Procurement in the system to facilitate creation of purchase order. This process takes around

2 days to process.

CHECK AND RELEASE ORDER IN SYSTEM:

Draft order is properly checked by the project

procurement along with the checklist and the documents. After incorporating necessary

corrections, order shall be released in the system. This process takes around only 1 day to

process.

ACKNOWLEDGE RECEIPTS OF PO AND SEEK CLARIFICATION:

Draft agreement for foreign collaboration is

handed over to the perspective supplier prior to starting commercial discussions. Deviation in

terms and conditions as requested by the vendor is discussed with legal, finance and accounts

and in head office, Mumbai which are signed by the representative of contractor.

FURNISH CLARIFICATION:

On the receipt of sanction, final agreements are

printed on stamp paper and executed by the appropriate authorized signing authority by the

purchaser and the vendor with Power of Attorney.


PLACEMENT OF PURCHASE ORDER:

The agreement is then followed by orders

released through SAP system.

In case the agreement covers foreign supply, indigenous supply, supply of designs

and drawings, supervision services, site work involving erection, testing and commissioning,

separate orders are released in SAP system.


The following is the chart representing the activities involved in the Project Procurement Process:


ACTIVITIES INVOLVED TIME CONSUMED (IN TERMS OF DAYS)

1. Conceptualisation & Preparation Of Specifications 30 2. Issuance Of Enquiry 10 3. Receipts Of Bids 15 4. Commercial Discussion & Price Negotiation 20 5. Offer Complete & Acceptable w.r.t. Techno-commercial aspects 03 6. Final Price Negotiation By Project Manager With Supplier 07 7. Release PR In System 02 8. Check & Release Order In System 01 9. Acknowledge Receipts Of PO & Seek Clarification 01 10. Furnish Clarification 02 11. Placement Of Purchase Order 02

15

The following is the pie chart representation of the whole project procurement process:


32%

11%

16%

22%

3%

8%

2% 1% 1%

2% 2%

1 Conceptualisation & preparation of specification.

2 Issuance Of Enquiry

3 Receipts Of Bids

4 Commercial Disussion And Price Negotiation

5 Offer Complete And Acceptable w.r.t. Technical And Commercial Aspects

6 Final Price Negotiation By Project Procurement And Project Manager With Vendor

7 Release PR in System

8 Check And Release Order In System

9 Acknowledge Receipts Of PO And Seek Clarification

10 Furnish Clarification

11 Placement of Purchase Order

16

From the above data, I found that the first process which is the conceptualisation & preparation of

specifications, the forth process which is the Commercial discussion and Price Negotiation and the

sixth process which is the Final Price Negotiation by Project Procurement Process is the most time

consuming process.

Therefore, the pie chart representation of the most time consuming processes are:


36%

12%18%

24%

8% 2%

Conceptualisation & Preparation Of Specifications

Issuance Of Enquiry

Receipts Of Bids

Commercial Discussion & Price Negotiation

Final Price Negotiation By Project Procurement And Project Manager With

Vendor

Placement Of Purchase Order

17

STATISTICAL ANALYSIS FOR REDUCING THE LEAD

TIME

Procurement activities can lead to significant savings and a number of other benefits. Therefore, the savings

and benefits can be measured involving a statistical tool which can lead to lower risk and lower expenditure.

Therefore, this can lead to lower risk and lower expenditure. The measuring processes, thus, are broken down

into the following steps:

SCOPE OF THE PROCUREMENT ACTIVITY:

The first step includes all the cost components that Q

11 1could be the cost drivers influencing the overall budget. It should be even kept in

mind that the cost of any additional products or services cannot be offsetting the agreed cost

reductions. This includes all the technical and commercial specifications, drawings and designs,

document batches, added value or service products, the budget allocation of the suppliers, etc.

It must be kept in mind that there should be an optimum utilisation of the resources

maintaining asset standardisation at possibly low reasonable price.

DEFINE THE COMPARISON UNITS:

The calculation of the savings or benefits of the

procurement activity can be determined by comparing the present or the current costs with

the predicted costs.

BASELINE THE CURRENT COSTS:

It is very important to consider all the major costs associated with

products or services. This includes a detailed analysis of the overall total cost of ownership.

Capital and operational costs are the main criteria of focus while

assessing the baseline costs. The above two criteria would include the following:


1) Raw Material Consumption,

2) Document Volumes,

3) High Bidding Price Expenditure,

4) Cost And Quantity Undertaken,

5) Tax Fluctuations Cenvat Benefits By The Suppliers,

6) Final Bidding Price Negotiated With The Suppliers,

7) No Of Change Orders Made Within The Process,

8) Cost Per Employee Basis,

9) Cost Per Unit Area,

10) Size Of The Project,

PREDICT THE FUTURE COST:

Here, the main things required to encounter will be primarily the

following points:

1) New Components Involved,

2) Higher Or Lower Value Product Or Service,

3) Different Consumption Levels,

4) New Brand/ Product / service,

5) Factors Of Cost Inflation Effect On The Total Project Costs,

6) No. Of Manpower,

7) Any Discounted Rates through Aggregation of Companies.

These factors can be well

estimated and made a useful scope for plotting out the difference between the present or

previous budgetary plan and give a glimpse of how to process and proceed a new

budgetary plan for an upcoming project.

COMPARE THE BASELINE WITH THE PREDICTED COSTS:

The final process is the comparison of the

baseline costs with the predicted costs.


This not only would help to find out solutions to develop a well defined business strategy but

also benefit the organisation to select a supplier for a multiple year agreement based on their

superior manufacturing capabilities and local presence with respect to have a wishful growth

in the business processes and meet a cost competitive advantage over the others.

Therefore, this must include the capital and some of the operational

expenditure along with the prediction of further new implementation.

Here, in the case of crude steel, crude steel production has the best ever

sales of 7.48 million tonnes for the year 2012-2013.It would be appropriate to analyse the

whole procurement processes with the help of CHI SQUARE TEST as follows:

TIME ESTIMATION: CHI SQUARE ANALYSIS


Activities Involved Observed Time

Expected Time

(O-E) (O-E)^2 (O-E)^2/E Percentage Change

Conceptualisation & preparation of specification.

60 30 30 900 30 2%

Issuance Of Enquiry 40 10 30 900 90 4%

Receipts Of Bids 30 15 15 225 15 3%

Commercial Discussion And Price Negotiation

40 20 20 400 20 2%

Offer Complete And Acceptable w.r.t. Technical And Commercial Aspects

8 4 4 16 4 2%


9 7 2 4 0.5714 1.2%

Release PR in System 8 4 4 16 4 2%

Check And Release Order In System 7 5 2 4 0.8 1.4%

Acknowledge Receipts Of PO And Seek Clarification

7 5 2 4 0.8 1.4%

Furnish Clarification 4 2 2 4 2 2%

Placement of Purchase Order 4 2 2 4 2 2%

Total 169.1714286

23%

20

20% over time is utilised which is indirectly the cost to the company. Majorly time spent upon

issuance of enquiry (4%) followed by the receipt of bids (3%) and commercial discussion (2%) which

can be possibly reduced. Reduce the time duration of receipt of bids by reducing the cycle time.

The graphical representation of the chi square analysis of the time estimation is as

follows:


Conceptualisation & preparation of specification.

Issuance Of Enquiry

Receipts Of Bids

Commercial Disussion And Price Negotiation

Offer Complete And Acceptable w.r.t. Technical And Commercial Aspects


Release PR in System

Check And Release Order In System

Acknowledge Receipts Of PO And Seek Clarification

Furnish Clarification

Placement of Purchase Order

21

Degree of freedom= n-1= 11-1=10

Here, there is a significant difference between the observed and the

expected value, so null hypothesis will be rejected.

COST ESTIMATION: CHI SQUARE ANALYSIS

Activities Involved Observed Expected (O-E) (O-E)^2 (O-E)^2/E Percentage Change

Sales 7.48 8.33 -0.85 0.7225 0.086734694 0.89%

Capital 3.96 4.4 -0.44 0.1936 0.044 0.9%

Recurring 55.77 56.35 -0.58 0.3364 0.005969831 0.98%

Excise Duty 4118 3196 922 850084 265.9837297 1.28%

Raw Material Consumption 9877 10108 -231 53361 5.279085873 0.97%

Purchase Of Power 2321 3810 -1489 2217121

581.9215223 0.60%

Payments To Employees 3609 3450 159 25281 7.327826087 1.04%

Stores And Spares Consumed 2091 1191 900 810000 680.1007557 1.75% %

Repairs To Machinery 1381 1121 260 67600 60.30330062 1.23%

Royalty 1152 1009 143 20449 20.26660059 1.14%

Tax Rates 423 396 27 729 1.840909091 1.06%

Fixed Assets :

Gross Block 47254 48132 -878 770884 16.01603923 0.98%

Impairment 137 109 28 784 7.19266055 1.25%

Depreciation 13520 12960 560 313600 24.19753086 1.04%

Investments In Subsidiary 48782 47892 890 792100 16.53929675 1.01%

Finance Cost 1877 1320 557 310249 235.0371212 1.42%

Net Finance Cost 1546 1240 306 93636 75.51290323 1.24%

Exceptional Items 675 595 80 6400 10.75630252 1.13%

Design & Drawings Time Consumption

404.6 396.5 8.1 65.61 0.165472888 1.02%

Total 2008.5777622

20.93%

We reject the null hypothesis as calculated chi square table is greater than the tabled value and

conclude that there is a significant difference between the expected budget and the observed

budget.


Now, when the two tables for cost estimation and time estimation are compared, we can reduce

the time of ordering and consuming the spare parts. The average stock must be kept and minimum

level to be maintained.

The graphical representation for the chi square analysis of the cost estimation is

as follows:


Sales Capital

Recurring Excise Duty

Raw Material Consumption Purchase Of Power

Payments To Employees Stores And Spares Consumed

Repairs To Machinery Royalty

Tax Rates Fixed Assets :

Gross Block Impairement

Depreciation Investments In Subsidiary

Finance Cost Net Finance Cost

Exceptional Items Design & Drawings Time Consumption

Total

23

ACTIVITY BASED COSTING:

Activity based costing is another efficient tool to costing products and services than the

traditional costing method. It helps to monitor the cause and effect of each processes and the

total set of activities performed leading to a standardised calculation of the activity rate, i.e.,

the cost of each activity per unit of its relevant cost drivers. The above chi square tests

eventually gave some ideas regarding which processes took the maximum time and what is its

actual cause. According to the chi square analysis, the most time consuming processes are:

CONCEPTUALISATION & SPECIFICATIONS OF COMMON CONSUMPTION ITEMS:

The first process (2%), formerly

known as the Conceptualisation and specifications of the items, followed by the

planning process including competitive bidding, final price negotiation till the

placement of purchase order, are a significant cause of an extensive delay. This

consumes a huge amount of time even more than the manufacturing processes

themselves, particularly where special materials have to be ordered from outside

suppliers.

LARGE DOCUMENT VOLUMES:

The complexity of the size of the document volume

matters a lot with respect to the conceptualisation and preparation of specifications.

The greater the document volume sizes, large variety of specialists are required and

hence the labour hours were in great excess during the production hours.

Sometimes

it does even happen that coupling with other system occurs due to large document

sizes. Therefore, the completion of PDE design had to wait until all the other designs

were completed before the next phases of the delivery process, procurement could

not be executed.


The document volume sizes must not be pushed by the down streams until there is a

real need for its execution towards the work process. If not taken proper care, it can

lead to non-sequencing of the overall volume size and getting the other systems

coupled.

ISSUANCE OF BIDS:

Issuance of bids is one of the initial time consuming processes (4%)

involving the various steps starting from the technical and commercial aspects. Here, the

vendors are supposed to submit the bids by the specified time. Technical discussions

regarding the drawing specifications must be revised on a regular basis. On the other hand, it

must even be kept in mind that the negotiations regarding the project cost and specifications

must be properly conveyed and made at par between both the parties.

CHANGES DUE TO EARLY COMMITMENT:

During the early stages, designs and

drawings need to be completed prior to the RFQ of the prospective project. At this

stage, the professional engineers had to make assumptions regarding some input

values such as breakage sizes or get approvals for the submitted drawings by the

supplier, which had to be corrected when the information became available.

However, it took a long time before a single change got handled and implemented.

The information had to pass on from the purchasing company, the contractor, the

distributor and the manufacturer and thereafter some negotiations even took place.

The information was processed multiple times which increased the waiting time.

Thus, the transmitting information and information waiting time consumed a major

part of the total lead time.


DRAWINGS:

After the selection of a vendor(receipt of bids-3%),drawings are

prepared, which represents the technical specifications submitted by the supplier to

the purchaser which takes plenty of time and problem getting approvals from the

higher authority. Drawings generated by the supplier needs to get approved by the

purchaser in order to compare technical specifications as compared to the various

configuration required by the company. This process

COMPETITIVE BIDDING:

Another great tedious process was the competitive

bidding which occurred soon after the arrangements of specifications of items are

made. The main phases in the bidding were preparing for the RFQs, executing the

bidding process and controlling the post contract deviations or issues. There can be

one or more levels of competitive bidding as per the requirements are concerned.

However, the phases include a wide variety of tasks:

a) Owner(Prebid):

Prepare prebid request documents,

Prepare bidders list and send prebid request documents,

Tabulate Bids,

Negotiate with manufacturer,

b) General Contracts,

Compare quotes,

Negotiate with contractor.

Change order even adds to a greater amount of time waste.


COMMERCIAL DISCUSSION & PRICE NEGOTIATION:

Once the bids are submitted, a

suitable vendor with a low reasonable bid is selected. The technical and commercial

offers are scrutinized in detail and a list of deviations with respect to enquiry

specifications is prepared. The vendors are then called for discussions to resolve the

deviations. Price bids are evaluated by Project Manager after the finalisation of all

the technical and commercial terms and conditions. This is because either the

supplier or the purchaser may have different strategies at different price levels. This

includes three or more rounds of negotiations which actually kills enormous

amount of time (2%).

SUPPLIER PERFORMANCE:

Another frequent cause of delay is the late delivery of

materials and components, some breakage occurring during the production process in the

machinery, or may even be if the supplier is having any difficulty in organising things and

strategizing the overall planning processes. This can lead to increase in waiting time

hampering the progress of the supplier.

On the other hand, excise duty, stores and spares consumption, repairs to machinery,

impairment, finance cost were some of the activities where enormous time was consumed.

STORES AND SPARES CONSUMED:

Now, when the two tables for cost estimation and time

estimation are compared, we can reduce the time of ordering and consumi ng the spare

parts. The average stock must be kept and minimum level to be maintained. Raw

materials, spares must be properly kept in a good condition and maintained in a minimum

content.


EXCISE DUTY:

Difference types of taxes which are levied upon the products and services

under the state and central government actually consumes lot of cost indirectly during the

processing and execution of the process.

EXCEPTIONAL ITEMS:

In case of any addition or requirement of new value added

products and services, the cost incurred in the processes is also considered to be the major

sign of the cost driven throughout. It eventually depends upon the higher or lower value

addition to the products, or different consumption levels, new brands product or services,

factors of cost inflation effect on total project cost, number of manpower or any tax rates or

discount rates through aggregation of companies.

Therefore, the key areas where necessary measures must be taken in

order to tackle with any additional risk of interruptions to production while reducing

the long lead times during the procurement processes are as follows:

ORDER PROCESSING:

Order intake, specification of equipments and planning

procedures are often a cause of extensive delay. The main problem lies with the

professionals for not being familiar with the utility company application process.

Lack of knowledge and availability of resources can not only delay the application

process and design implementation but also causes additional work for the

professional engineers, the purchasing company as well as the contractor.

Therefore, there must be a proper knowledge as well as get timely information

regarding the equipments and the application process of the company.


This would ensure what and how much quantity of the specifications of items is

required which would further eliminate the unnecessary wastage of time and

resources caused due to the ordering of huge amount of specifications including

the value added as well as the non added products.

REDUCING THE SIZE OF DOCUMENT VOLUMES:

Processing large volumes led not only to

long lead times processing but also created a mess for every piece of equipment in

order to wait until the huge lot were specified before a single drawing could be

moved to the next delivery process. Even the complexity and size of the document

volumes involved a large variety of specialists working upon the huge lot and

hence the labour hours increased up to a greater extent. Thus, this reduced

flexibility in the overall process and led to extra time wastage, more than the

normal processing time. The solution for this is to attack the set up time the

machine takes for the new batch. Reduced set up time increases flexibility and

decreases the economic order quantity leading to the reduction of waiting time

and improving utilisation.

IMPROVING DESIGN & DRAWINGS:

Since some of the critical processes required large processing

time for them to either get properly implemented in the process due to some

breakage or missed input values or getting approvals of the drawings, a huge

amount of time is wasted for the information to travel through a number of

professionals to get approvals of being processed.

Therefore, it is suggested to have a proper knowledge of the

processes which needs to get improved.


Thus, the organisational relations have to redesign in order to streamline the

document flow so that the information flows between the technical engineer and

the manufacturing plant is significantly shorter. This can be achieved by reducing

the document volumes thereby decreasing the number of players in the process.

This would ensure the savings of time, money and resources.

STRATEGIZING COMPETITIVE BIDDING:

Competitive bidding consumes not only time but also

significant resources. Each supplier had their own strategies at their own

determined prices which can creates difficulty for the purchaser to select the

suitable supplier who can significantly contribute to make the project a huge

success. Reducing inflexibilities during the bidding processes actually led to a

number of changes after the procurement of the equipments. Since more amount

of resources were involved in excess due to the frequently occurring changes, it

turned out that the range of the suppliers bid was low but the bidding process

consumed more money than was gained. The purchaser therefore, is sugges ted to

reduce the life cycle cost of the equipments, reduce the document volumes,

review the design and drawings, look for any errors existing in the process which

needs to be corrected and reduce the setup time the machine takes for processing

each batch. Moreover, the equipment had to be properly assembled and

components had to be of high quality brand components.

PROPER EVALUATION FOR DISCUSSION & PRICE NEGOTIATION:

After the selection of a suitable supplier, the supplier is called

for discussions regarding price determination and proper evaluation of the

techno-commercial part of the bids.


It is the sole responsibility of the purchaser as well as the supplier to identify

the redundancies and design a systematic error prone work flow to eliminate the

non value added activities. They must meet with each other to discuss possible

new products or markets and other beneficial strategies. Suppliers may also offer

valuable inputs to corporate objectives and issues. Meanwhile, the purchaser even

has to have a regular visit to the supplier’s manufacturing work place in order to

check if there are any existing errors or breakage which needs to be corrected or

whether the supplier is having any difficulty to strategize the overall plan for the

execution of the process. In such a case, the purchaser must make a quick move

and provide a helping hand to find out the best strategy at the most reasonable

price possible. Tighter relationships with supplier can result in supplier integration

which can lead to shorter lead times, higher quality and more reliable fulfilment.

As a result, revisiting supplier relationships and negotiating contracts further

strengthen the Supplier Relationship Management (SRM).

BENEFITING THE ORGANISATION AS A WHOLE:

During the project processing period, it is very

necessary that the technical engineers, the executive professionals as well as the supplier

needs to review the checklist after processing each step, such as Order processing,

specifications and planning, production control and purchasing. Cloud computing

technology has proved to have created a profound impact in filling the overall

communication gaps among each department. This serves to be a single common medium

where in full information is available of each work processes to each departments

concerned. This helps to know where and how each difficulty could be properly examined

and work out for a clearly defined business strategy. Problems like shortage of required

equipments, breakage found in the ongoing processes of machinery during the production

phase, non sequential process activities, lack of knowledge and information, changes due

to early commitment or change orders, implementation of improved design or drawings,

increasing inflexibilities due to large document volumes, etc., can be effectively addressed

by reviewing the progress report on a regular basis which henceforth could help to

achieve a competitive edge in the present market scenario.


SATISFYING A CUSTOMER’S REQUEST:

FINALISATION OF SPECIFICATIONS

SENDING REQUEST FOR QUOTATION

RECEIVING QUOTATIONS

TECHNICAL ASPECTS COMMERCIAL ASPECTS

DRAWINGS TO BE SUBMITTED

BY SUPPLIERS

NEGOTIATE WITH SUPPLIERS

DRAWINGS TO BE APPROVED

BY PROJECT MANAGER

COSTS DETERMINED AND MADE

AT PAR

ORDER GOT PLACED

SUPPLIERS ARE EXPECTED TO

DELIVER THE GOODS

COMPANY ISSUES THE GOODS

INSTALLING AND

COMMISSIONING IS DONE

PERFORMANCE ACCEPTANCE

TEST IS DONE

FINAL PAYMENT IS DONE

DESCRIPTIVE ANALYSIS:

The descriptive analysis for time estimation and cost estimation is found to be:

In this case, the skewness is 1.11 which is positive and hence concludes that

the actual time is deviating from the expected time. On the other hand, the skewness for cost

estimation is 2.53 which is positive and hence concludes that the actual cost is deviating the

expected cost.


Cost Estimation

Mean 7328.148

Standard Error 3386.569

Median 1546

Mode #N/A

Standard Deviation 14761.71

Sample Variance 2.18E+08

Kurtosis 5.448626

Skewness 2.537974

Range 48778.04

Minimum 3.96

Maximum 48782

Sum 139234.8

Count 19

Largest(1) 48782

Smallest(1) 3.96

Time Estimation

Mean 19.72727273

Standard Error 5.845108148

Median 8

Mode 40

Standard Deviation

19.38603058

Sample Variance 375.8181818

Kurtosis -0.00595611

Skewness 1.118981733

Range 56

Minimum 4

Maximum 60

Sum 217

Count 11

Largest(1) 60

Smallest(1) 4

33

ROLE OF STRATEGIC SOURCING IN

REDUCING THE LEAD TIME

Strategic sourcing is the basic concept of making the purchases by evaluating, selecting and

aligning with suppliers to achieve a company’s objectives and issues. It deals with what is

actually needed by the company based upon the present supply market conditions and then

develops a plan for both short and long term sourcing objectives. Therefore, it can benefit

the purchasing and procurement management as a whole in order to come up with the

require goods and services strategizing the overall plan at the most reasonable price

possible.

Strategic sourcing even enables greater dimension in making work processes

easier and impactful. Internet is one of the effective tools which are highly useful for

sourcing and procurement. Strategic sourcing has been e-enabled through web applications,

market places that support requests for information (RFIs), request for quotation (RFQs),

purchase orders, logistics, arrangements, payments, etc. Strategic sourcing can therefore, go

well beyond cutting the costs and saving time. It can have an immense impact on the

company’s financials and even influence the purchasing and procurement processes.

Therefore, it is very important to establish beneficial strategies for the proper execution of a

project:

INFORMATION AVAILABILITY:

There is a possibility of getting differences in costs,

availability and selection of a particular commodity while making purchase. On the other

hand, there may be even possible benefits where a souring professional recognizes that

there will be a shortage of a particular product and can plan for an alternate supplier

instead of worrying about the missed deliveries leading to product backlogs.


Therefore, strategic sourcing enables the company to constantly evaluate, information

about the business strategy, overall market conditions, supplier performances, internal

needs and upcoming beneficial engineering changes and to adjust accordingly.

ORGANIZATIONAL COMMITMENT:

Strategic sourcing helps in understanding of what is the core competency of

a particular company and what yet is needed to achieve in order to support a clearly

defined business strategy. Intranet provides a medium for communicating corporate goals

and objectives as it is single medium through which full information regarding each and

every work stations and meetings is provided in common to each department. Non-value

added functions that waste critical time, resources and require financial support can be

identified and eliminated. Moreover, it becomes necessary for a full fledged involvement of

both the purchaser and the strategic sourcing supplier to have a regular discussions and

negotiations new products availability or implementations of new machinery or beneficial

strategies. Even they must take initiatives identifying redundancies and design a systematic

work flow to eliminate the non value added activities. This helps in building a Sup plier

Relationship Management (SRM).

SUPPLY MARKET UNDERSTANDING:

Strategic sourcing has broadened the

understanding of the organisations2

to mainly stress upon the present market conditions while making purchases. Even

the position of suppliers in the existing market, the presence or absence of

purchasing product’s substitute or compliment and finally the supplier’s capabilities

or overall strategies adds greatly to a proper purchase making. This helps an

organisation to know what its core competencies are and what is yet needed to

achieve understanding ways to have the best strategy at the most reasonable price

possible.


TOTAL COST EVALUATION:

Total cost evaluation points out some of the basic criteria in order to

reduce the total cost and save time accordingly. This mainly depends upon how better is

the negotiation skills of the executive skills, conceptualisation or preparation of

specifications, selection of a suitable supplier and to what and how to install or process

resources at a reasonable prices and even the true life cycle costs of a particular product.

Thus, strategic sourcing can increase the value and find out ways t contribute to a greater

part of savings for a company.

MODIFYING APPROACH TOWARDS SUPPLIERS:

Today, there is a huge competition among the organisations in order to

find the bests solution which could not only minimize the total cost but even the time

improvising the performance of both the purchaser and the supplier company. Internet and

online bid have created huge differences in the competitive environment. It has even

increased the responsibility of the suppliers for maintenance of lowering the overall bidding

cost as well as the total project cost. Hence, they need to understand the market conditions

to look for possible opportunities and benefits preventing the risk of failure. Strategic

sourcing can be thus proving beneficiary in evaluating and modifying supplier relationship to

achieve the desired results.

ORGANIZATIONAL ROLE CHANGES:

Executive professionals have to primarily focus upon the sourcing

objectives such as placing orders, rescheduling orders, resolving invoice discrepancies and

have little time available to focus on higher value activities such as supplier management,

35

market research, and meeting with internal customers to understand how their needs are

currently being met or are potentially changing.


CULTURE PROCESS FOR CONTINUOUS IMPROVEMENT:

Continuous improvement is a means to define the present process and

plan for further implementation of change accordingly, which is very hard to achieve. Here,

all the major success factors such as organizational commitment, organisational role changes

and measurements needs to be taken into account for having continuous improvement

strategies in the processes.

36


IMPACT OF REDUCING THE LEAD TIME

BENEFITING THE ORGANISATION

Reducing the lead time during the procurement process is the main idea for making a company

achieves huge success. This can further lead to lowering the overall risk, expenditure, lead time,

and resources utilisation thus creating a huge impact on increasing the efficiency levels for a

company.

STAFF TIME SAVED:

The main complication actually arises from the implementation of processing

the specification of large voluminous batches which includes more number of professionals

and therefore leads to extra time, money and resources wastage. The setup time for

processing large volumes becomes difficult and sometimes, it does e ven happen that the

huge lot is pushed towards the downstream processing without realising there is a need for

it. Thus, this leads to a non-sequenced document size processing and increases lead time.

So, the strategic processing must involve shorter volumes which reduce inflexibility and

lead time in the process leading to the decrease in the number of staffs and even the time

reduces staff time also.

PROCUREMENT –EFFORT AVOIDANCE:

37

As stated above, if there is even a possibility in reducing the amount spend

upon each staff members and hence cost reduction criteria can be successfully met and

avoids much stress or complexity in the process leading to the smooth flow of the overall

process.


E-TOOL IMPLEMENTATION:

Internet has proved to be an effective tool in making the communication easier than

before. Now, huge organisations have their own common working site formerly known as

Intranet, which has all the possible information for every ongoing process available to each

department so that they could avail easily to the information and can plan suitable

strategies to overcome any upcoming problem. This would not only save staff time but also

helps to prevent redundancies occurring in the process.

CULTURAL CHANGES:

Cultural changes are very necessary for a company depending

upon the ever growing market conditions. The requirements of the company keeps on

changing time to time and there is an increased scope that the main competencies must

primarily focussed upon while making purchases or deals. Therefore, there is an increased

necessity of the purchaser as well as the suppliers to focus upon the key areas such as

carrying out a well planned market research, meetings with internal customers and

suppliers and even to keep a checklist and review each step after processing. This would

not only give them the idea of the next task but also show them where the existing

problems are and how to address it. This could lead an organisation with more number of

improvement changes compared to the last project and as sense of continuous

improvement strategy will be developed.

DEMAND REDUCTION:

38

There is a requirement of keeping updated information

available throughout the procurement activity creating a need for the executives to meet

on a regular basis. In some cases, the demand for travel significantly reduces as the new

video conferencing technology has come up and thus, is now no need for travelling far off

for regular updates which thus, saves time and money.


STANDARDISATION:

Organisations often want to upgrade a new technology or add

a new feature or value to a product which adds to a product standardisation and associated

benefits. The value of each benefit could significantly reduce the total cost coming from the

supplier, its overall production and optimum utilisation of resources. This helps to reduce

the time and money.

REDUCED INVOICING COST:

Reduced invoicing cost can only be achieved by procuring

specifications as per the requirement and not only involving large volumes which could

further accommodate large spaces and there will be an increase in the travelling expenses.

This can led in maintaining a reasonable travelling budget for the transportation of

specification of equipments to the supplier.

As far as the efficiency improvement is concerned, the reductions in the

procurement lead times not only improve overall efficiency but also lead an organisation

making purchases in a well strategic manner. Following are the criteria’s where significant

improvements with respect to making purchases for a company:-

CAPITAL REDUCTION:

The overall capital depends not only upon the negotiated

agreed upon price with the supplier but also the total cost. The purchaser and the supplier

39

must take certain initiatives to drive reduced cost and time in the business. Non value

activities such as waste, breakage or any existing errors can be significantly addressed and

removed from the process. The production must be set up so that defects cannot occur

until relevant information is available for further processing. This can lead to increase in the

supplier performance and decreases wastage of time and money enhancing the overall

capital reductions.


PRICE REDUCTIONS:

As the capital expenditure reduces, the price for the goods or

service even reduces. In case, there is a bulk purchase when multiple agencies combine

their orders, there is a saving between initial paid price and the new agreed price.

ADDED VALUE:

When any value is added to a product or service and the price of

the product still remains the same there is a full chance in the increase in the demand for

that product in the market. Therefore, the level of sales increases up to a greater extent

and cash releasing benefit can be significantly achieved.

COST INCREASE AVOIDANCE:

If the offered price by the purchasing company goes above the

price bid by the respective supplier, then the remaining increase in price is avoided. This

reduces the total capital expenditure for the organisation to invest in the project.

SPECIFICATION OF ITEMS REDUCED:

It is wise for a company to procure only the quantity and the

quality required which enables a company to reduce extra wastage of time and even

40

putting extra manpower and efforts. Purchase for huge lot volumes can be avoided leading

a company to optimized utilisation of the limited resources.


SIGNIFICANCE OF REDUCING THE LEAD TIME

FOR A COMPANY

Procurement process, as a whole, has always been known as great time consuming step in the

overall supply chain. It is all about making purchasing decisions based on what is currently required

by the company. The purchaser connects the purchaser with the supplier and so it is very much

important to maintain a healthy relationship through supplier relationship management system.

The main idea behind the procurement is to reduce the lead time, costs, and expenses leading to

increase in the overall efficiency.

Some of the major time consuming procedures such as making

arrangements for common consumptions equipments, carrying out rounds of negotiation between

the supplier and purchaser in order to convince the supplier to adopt a similar strategy at a low

reasonable budget, must be significantly reduced which could provide better solutions company to

achieve the three main value drivers:-

COST REDUCTION:

It is the first thing which comes to mind when thinking of

reducing complexity in the procurement process. It indirectly results in the reduction of

costs (particularly total cost of ownership) in different ways:

A) REDUCED INTERNAL COSTS:

41

When focussing upon internal costs, the first criterion

of cost reduction is the procurement of efficient products and the reduction of their

consumption during the work production processes. Primaril y, the arrangement of the

common consumption items takes a longer time and even is required in a huge quantity.

Thus, there is a need of ordering extra efficient items only when required which would

most probably keep the costs down.


So, it is beneficial for a company to make further investments on efficient products (lower

energy consumption, longer lifespan, lower maintenance cost) where higher investment

cost will be offset by lower operating costs, resulting in lower Total Cost of Ownership.

Apart from the efficient products, there has also be seen a need on the reduction of non

production/non value addition products categories which leads to increase in wastage of

time, value and money.

B) REDUCED SPECIFICATION/ DEMAND:

Specifications must be reduced which are not required, for

example, over packaging, in case of procuring materials and delivering the raw

materials to the supplier.

C) REDUCED ENVIRONMENTAL & SOCIAL COMPLIANCE COSTS:

Social and environmental taxes represent huge expenses

significant expenses. Some of the waste equipments and packages carried some

weight and were therefore adds no value to the overall bunch. Cost reduction can

be achieved through lighter and eco designated products. The normal freight tax

and insurance tax charges can be minimised by subtracting the wastage number of

goods carried for delivery from one place to another. These taxes are calculated on

the basis of the total weight of the products used for carrying and forwarding

purposes.

42

19

RISK REDUCTION:

Cost reduction is a primary tool for reducing complexity and wastage which could

therefore, lead to uncertain conditions and increased risks. Risk management is another

criterion which is used to reduce unanticipated disruptions which can be costly. Companies

not only are finding the suitable way to better implement at the time of occurrence of

disruptions but also they are trying to anticipate disruptions before they occur.


There is an increased risk in such a condition where the company involves a new idea or

method or implements a new plan which can have an adverse effect either can be a worth

plan to achieve economies of scale or lead a company to a disastrous condition. The brand

reputation of a company depends upon the effectiveness of the events involved for the

execution of the work processes with the suppliers. Some of the events have led to direct

costs (recall of products, financial penalties) or indirect costs (decrease in market share,

sales and market cap, product boycotts).

Despite the difficulties of the evaluation of effects

of the supply chain, there are few examples which can prove to be effective in terms of

choosing a beneficial supply chain sustainable strategy for the growth of the company.

In case of Nike who was publically

accused Life Magazines for using child labour in Pakistan to manufacture soccer balls.

Despite NGO protests and media pressure, the share price did not show any sign of

decreasing over the year. This crisis lasted until the company declared some long term

measures to improvise the working conditions at Nike’s supplier factories. Nike therefore

implemented and has involved a sustainable approach in the overall procurement practise

by creating value and quality reducing costs. However, it may have to bear some indirect

costs which hardly had any such great effect on the market capitalisation of the company.

REVENUE GROWTH:

This stage is the resultant of cutting down costs effectively in the overall

plan in order to reach an effective and revenue growth for the benefit of the company. Cost

and risk reduction is the primary goal for a company to achieve and so, revenue growth

43

19

stage is the least explored are in the whole procurement process, even is the most complex

to achieve.

This includes maintaining the normal customer and supplier relationship and

monitoring the environmental innovations of the suppliers. Environmental innovations

helps the company to adopt a given procurement criteria(for example, green energy,

organic food, raw materials with a higher recycled content, etc) in order to benefit from the

risk reduction or revenue growth drivers.


It is necessary to include those product categories or implement those effective measures

which support a greenery sustainable approach to a procurement practice which would not

hamper the environment and at the same time adding value and quality by reducing overall

cost and risk leading to a higher revenue growth for a company. As a result, it would create

additional sales from existing customers or capture new market. This area is actually

grabbing a huge amount of risk as the sales or the revenue growth is difficult to estimate

unless the customers perceives added value and is ready to pay for it.

It is suggested to include a new business strategy which is

formerly known as the so called “green” and “ethical” brands based on a fully sustainable

supply chain. Some of the companies such as Divine Chocolate, Alter Eco, Werner Mertz,

Hipp or JEL in Jewellery have proved to make a successful leap in trying to built a fully

sustainable procurement processes The ever-growing sustainable procurement practice not

only help to maintain one’s current market share but also is a basis for additional revenue

generation. That is why many companies (such as Unilever with Ben & Jerry’s, DANONE

with Stony field’s brand, Les 2 Vaches, etc) have tried to enter the green market through

the creation of a dedicated “green” portfolio (such as Starbucks, Kraft, Sun, etc). This states

that procurement practice combined with a full sustainable approach is likely to win the

contract which mainly prefers sustainable criteria in the tender process.

44


STANDARD CLAUSES FOR SUPPLY OF

EQUIPMENTS

DEFINITION OF A PURCHASER:

A purchaser (the procurement departments), awards

the supply order to supplier including its terms and conditions in typically

documented contract.

DEFINITION OF A SUPPLIER:

Suppliers are vendors who will supply the plant &

equipments including its directors, employees, successors, engineers, agents or

any of them.

ORDER DATE:

The date which is mentioned in the order is the order date.

PRICING TYPE:

Prices shall be included in contractor supply of all materials, services, labour and

facilities required for the job excluding free issue materials to be issued by the

purchaser.

45

Prices must include delivery, incoming materials section, and taxes for road permit,

excise duty, transit insurance, and central sales tax, packing and forwarding charges.

The unit rates shall remain valid till the completion of the commissioning of equipments

and even implies in the additional cases unless it is being mentioned by the purchaser.


Any statutory variation occurring in excise duty, education cess, and central sales tax,

imposition of new statutory taxes and duties within the contractual delivery period shal l

be to the purchaser’s account against the documentary evidences submitted by the

supplier.

The contractor needs to furnish the documentary evidences as issued by the

government of India along with corresponding challan and returns by raising

supplementary invoice of additional taxes for claiming the differential amount.

If, in any case, the contractor is unable to submit the documentary evidences regarding

any changes in the statutory taxes and duties, then the whole expense shall be

recovered by the contractor from his current and future bills and not by the purchaser.

Suppliers shall be held responsible for any damages incurring during the delivery of the

goods or in the production process or liable for any assumptions and the same shall be

recovered from the supplier’s dues.

Transporters copy of excise invoice shall be handed over to purchaser’s incoming

material section (IM Section).

It is the duty of the supplier to provide the purchaser with all the necessary and required

valid documentation so that the purchaser can avail the cenvat benefit.

Invoices for the claim of payments must be raised by the suppliers.

If in case, the purchaser is not able to avail the cenvat benefit, either be the reason that

the materials are not cenvatable for the purchaser or may be the actual cenvat benefit

passed to Tata Steel Limited is less than the minimum declared by the supplier, then the

purchaser is not liable for any excise duty or any CST/VAT claimed by the supplier.

46

Supplier is liable to compensate to the purchaser for any loss, cost or damage suffered

by the purchaser on the availment of cenvat benefit and the expense shall be deducted

from the supplier pending bills.

DESIGN AND DRAWINGS:

Supplier is liable for the submission of drawings, data, manuals, certificates to the

purchaser at the supplier’s expenses.


All the drawings shall bear a stamp and date at a prominent place signifying whether the

drawings are preliminary, or submitted for approval, or certified as final or submitted for

information.

Suppliers even may collect the soft copy of the purchaser’s drawing format.

All “as built” drawings and documents shall be submitted by the supplier in hard copy

prints, two sets of these shall be submitted to the purchaser and another two to the

Engineer.

TERMS OF DELIVERY:

The delivery of items shall be in a good condition, duly packed with the freight charges

prepaid by the supplier to the specified location, which may include the Incoming

Material Section, Purchasers works, Jamshedpur.

TERMS OF PAYMENT:

The supplier shall be entitled to payments as per the terms of payment indicated in the order

including the statutory deductions made by the purchaser’s account.

WARRANTY/ GUARANTEE PERIOD:

Warranty or guarantee period shall be of twelve months from the date of issuance of Provisional

Acceptance Certificate.

During the warranty/ guarantee period, the supplier shall, at his expense, can repair of replace

at the site free of cost to the purchaser:-

1. Which may not comply with the technical specifications set forth in the contract,

47

2. Which may be a defective or incorrect design,

3. Which, under normal wear and tear proves to be a defective part or gives a poor performance?

It becomes a purchaser’s authority to take certain suitable measures for repair or replace at

suppliers sole risk and expenses, if , in case, the supplier fails to repair or replace any defective

part with the stipulated time period(10 days) after the receipt of such notice given by the

purchaser.


All the repair or replacement carried out by the supplier to rectify defects shall be made to the

satisfaction of the purchaser along with the rectifying the part of work which has been affected

by the defects.

The purchaser issues final acceptance certificate (FAC) to the supplier on the successful

completion of 12 months of warranty/ guarantee period.

If some difficulties or a defect arises during the operational condition defined in the technical

specifications, the date for issuance of the Final Acceptance Certificate will be extended

accordingly until the defects have been cured.

LIQUIDATED DAMAGES FOR DELAY IN DELIVERY:

The contract must be completed adhering to the time schedule specified. In case of delay in

delivery due to the liquidated damages, the purchaser has the right to recover those damages

from the supplier at the rate of half percent of the total order per week of delay or part, subject

to a maximum of five percent of total order value.

OTHER CONTRACTUAL STIPULATIONS:

INITIAL SPARS QUOTATION:

The supplier must submit his quotation for initial spares for 2 years

trouble free along with the operation of the equipment offered including the accessories, etc to

purchaser’s group head within two months from the date of this order.

INSPECTION AT MANUFACTURER’S WORKS:

48

The supplier can give a direct call to the Engineer in advance along with

the necessary internal inspection report, test certificates and material test certificates.

The purchaser can even decide not to inspect the material. In such a case, the supplier will

despatch the material along with his accepted internal inspection report, material test

certificates and certificate of performance of equipment.


If, in case, the material is rejected at site or on the basis of documents send to the purchaser, it

will be the supplier’s responsibility and take back the rejected material within one month of

purchaser’s receipt of replacement items and even the dispatch clearance certificate shall not

bind the purchaser to accept the defective materials.

PATENT INFRINGEMENT & INDEMNITY:

If the supplier has been addressed of any patents over the equipments supplied to the

purchaser, then the supplier is only to be held responsible to protect or save the purchaser,

customers and the users of its products against all liabilities including costs, expenses, claims,

suits or proceedings at law or violation of any license by the reason of manufacturing

fabricating, or processing with the said equipments or any part. The supplier shall defend or

settle at his own expenses for any claims, suits or proceedings under the Intellectual Property

Right.

The purchaser, on the other hand, shall promptly notify the contractor in writing

of such claim, suit or action giving authority and all available information for framing a

supporting shield for the supplier’s concern. If, at any time, the installation of the equipment or

the use of the equipment for which it is furnished, is prevented due to the patent infringement

or claim, the contractor shall promptly at his own expenses shall either protect or procure for

the purchaser the right to use and continue to use such plant or replace the same at his own

expense under the requirement of the contract within the reasonable period to be agree d

between the parties, so that the operation of the purchaser’s plant will not be delayed or

interrupted or lead to loss for the purchaser. If the shipment of the plant or equipment is

prevented as a result of any claim of patent infringement, the contractor shall furnish and post

the necessary steps to enable shipment to be made without delay.

49

FORCE MAJEURE:

During the continuance of the processing of order, any natural calamity such as fire, flood,

earthquake, explosion, epidemic, quarantine restrictions or either any declared war, hostility,

acts of the public or enemy, affecting the performance and respective obligation of the parties,

then the supplier needs to submit the documentary evidences to the purchaser in order to

extent the date of delivery or commencement within 15 days and terminate the previous order.


The purchaser, in case, extends by a period equal to how many days the eventuality happened

plus an additional period considering a reasonable obligation by the purchaser. The overall

damage expense will be bearded by the supplier itself. Both the parties should consult each

other and take measures in order that both of them have a

Win-win settlement.

50


STANDARD CLAUSES FOR SITE SERVICES

PRICES BASIS & DUTIES:

The prices includes all the expenses a supplier needs to bear while making final delivery to the

purchaser along with the services, labour and facilities required for its proper execution excluding

the free issue materials provided by the purchaser.

The total order value is inclusive of all applicable taxes & duties including se rvice tax, education

cess and secondary & higher education cess, VAT works contract tax as per mentioned in the

order.

The price rates shall remain constant until the completion of the project or during the validity of

the work order no matter how much ever it is extended.

The contractor unit rates shall remain fixed even if there are any changes in the quantity of

individual items. The value must remain within 25 percent.

The price is inclusive of 1 % safety reward which shall be paid to the contractor.

Any variation in services tax, education n cess and higher and secondary education n cess

occurring after the date of Letter Of Intent, within the contractual period of completion, the

purchaser is responsible to revise the new payments of the supplier including the new taxes and

levies and make recovery of the same to the supplier’s account against the documentary

evidences by the contractor.

28

51

The contractor shall be responsible for his wrong assumptions of the levied axes and duties in the

order price or if any of the taxes not included by the supplier shall be paid by the supplier itself.

In case of any loss, the contractor shall indemnify and compensate for the same due to the non-

availment of cenvat benefit by the purchaser of service tax and cess which is included in the

invoice by the supplier.

In order to claim reimbursement of the service tax, education cess, primary and secondary n cess,

the contractor shall fulfil:

1. The contractor shall submit the invoice in a standard prescribed form.


2. The contractor shall furnish the service tax registration number and service tax category in the

invoice.

3. Invoice must have invoice date and pre printed number.

4. The contractor shall submit a declaration that they will be discharging the service tax liability

on the due date.

5. Invoice must be signed by the authorized signatory of the contractor or service provider.

COMPLETION PERIOD:

The entire job shall be completed by the supplier within the specified period mentioned in the

order from the date of issuance of the letter of acceptance/ intent.

In case, there are some variations between the delivery dates against each item and the dates

calculated based on the completion period given in the text of order, then the data calculated

based on the completion period given in the text order shall be binding for all contractual

purposes.

TERMS OF PAYMENT:

The supplier shall be entitled to payments as per the terms and conditions subject to any

statutory variations or deductions which the purchaser may be authorized to make.

SUBMISSION OF BILLS:

Bills or invoices shall be prepared as per the order. It must be in required numbers of addressed to

Chief Financial Controller, shall be submitted to Bill Group, Central Project Engineering Division, along

with the duly filled in bill forwarding checklist and even the documents. The bill shall contain:

52

1) Order reference and date,

2) Scheme Number,

3) Bill/Invoice number and date,

4) Running Account Bill number,

5) Contractor’s Vendor Code,

6) Name of the contractor,

7) Name of the contact person,

8) Name of the engineer,


9) Contractor contact person’s name, telephone number, Mobile Number, Fax Number and

his Email Address,

10) Contractors service tax registration Number.

Vendor must furnish the following information in their service bills:

1) Bill should be in the name of Tata Steel Limited, Jamshedpur,

2) Vendor Code,

3) Service tax registration number and service tax category on face of the bill,

4) Separate line item for service tax & cess on face of the bill,

5) Bill serial number and date must appear on the face of the bill,

6) Signature of vendor/ authorized official on behalf of the vendor stamp.

WARRANTY / GUARANTEE PERIOD:

Warranty or Guarantee period shall be of twelve months from the date of issuance of

Provisional Acceptance Certificate.

During the warranty period, the supplier shall, at his own expense, can repair or replace at the

site free of cost to the purchaser:-

1) Which may not comply with the technical specification set forth in the contract,

2) Which under normal and proper use and maintenance proves to be a defective part or is

exhibiting poor performance, subject to normal wear and tear,

It becomes a purchaser’s authority if, in case, the supplier fails to repair or replace any defective

part with the stipulated time period(10 days) after the receipt of such notice given by the

purchaser.

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All the repair or replacement carried out by the supplier to rectify defects shall be made to the

satisfaction f the purchaser along with the rectifying the part of work which has been affected

by the defects.

The purchaser issues final acceptance certificate (FAC) to the supplier on the successful

completion of 12 months of warranty/ guarantee period.

If some difficulties or a defect arises during the operational condition defined in the technical

specifications, the date for issuance of the Final Acceptance Certificate will be extended

accordingly until the defects have been cured.


LIQUIDATED DAMAGES FOR DELAY IN DELIVERY:

The contract must be completed adhering to the time schedule specified. In case of delay in

delivery due to the liquidated damages, the purchaser has the right to recover those damages

from the supplier at the rate of half percent of the total order per week of delay or part, subject

to a maximum of five percent of total order value.

VIRTUAL COMPLETION CERTIFICATE:

As soon as the engineer finishes his work, the engineer on receiving a written application from the

supplier t issue certificate of virtual completion, together with a written undertaking by the

contractor of finishing an outstanding work within a short period with a proper satisfaction and

being occupied or used by the purchaser, issues a certificate of virtual completion. After the

issuance of such a certificate, the defect liability period and the overall shall commence from the

date of virtual completion of work.

On the other hand, if any part of the work is under the foregoing provisions shall

not be deemed to certify completion at any grounds or surfaces requiring rei nstatement and

thereby leading to non issuance certificate of virtual completion.

PERFORMANCE TESTS:

The contractor shall demonstrate the performance tests as per the technical specification.

In case, if the results of the performance guarantee tests are not satisfactory, subject to the

permission granted by the purchaser, then these are known as liquidated damages. In such a case,

the contractor is supposed to repeat the tests after rectifications and adjustments within 15 days

having full intent of the purchaser from the date of the repeating tests. Maximum three numbers

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of tests to satisfy the performance guarantee parameters. The purchaser shall accept the plant &

equipment with those limited liquidated damages if the results are within the tolerable limits as

specified in the technical specifications. The contractor is payable in such case for any small or

bearable damages.


SAFETY, OCCUPATIONAL HEALTH AND TPM REQUIREMENTS:

Under the safety and occupational health Policy, the purchaser has adopted a “zero incidents”

strategy. Incident is defined as any event which resulted or could have resulted in injury to human

being loss or damage to equipment or human or property production loss/ adverse environmental

impact or adverse environmental impact or adverse community reaction.

Each supplier needs to meet the entire safety standard in order to ensure there is “zero

incident” and eliminate all unsafe conditions which could hamper a safe working environment.

SAFETY STANDARDS & COMPLIANCE TO SAFETY STANDARDS:

There are altogether 61 safety standards applicable in the project sites which are available in the

project sites which are available in the “safety” page of purchaser intranet site.

The contractor is required to acquire a copy of the same from the

purchaser and considered as mandatory follow all the safety measures while carrying out the

manufacturing process.

TPM- GENERAL SAFETY REQUIREMENTS:

Visual Workplace Management at the commissioning & Installation stage:-

1. Designating paint on all pipelines and giving direction of flow on it.

2. Writing the name of all the permanent and temporary structures on it permanently.

3. Transparent roof to provide natural light to the shop floor.

4. Making the provisions for parking of all type of vehicles and all type of visitors.

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5. Entry/ No Entry/ Restricted Entry, Exit/ Emergency- Exit / No- Exit clearly marked in all the

Entry and Exit points.

6. Standardised name plates and room numbers of doors.

7. Giving unique name to all the equipments, written on its body.

8. Keep provisions near the equipment to install information board.

9. Customer Corner (mentioned details regarding all the processes, products, etc) is put near the

main entrance.

10. Fixing docking location for moving equipment or transportation items.

11. Clear cut “Open- Close marketing “on each value.


12. Important specifications of the equipment (for ex., for a motor, RPM, Rating, etc) written on it

prominently.

13. Process parameters of the equipment, displayed near the point of use.

14. Earmarked areas to keep hazardous material.

15. Mark on all transparent glasses to avoid any collision.

16. Mirror at all blind curves.

17. Each and every location allotted for fire extinguisher must be marked with a serial number as

in FE/1 and so on. The type of fire extinguisher should also be marked like DCP, Carbon

dioxide, Wet carbon dioxide, and FOAM, painted by white fluorescent paint on a red

background of 30 cm* 21 cm.

18. Fire hydrants points must be numbered starting with FH/1 and so on. Letter description should

be of 9 cm.

BILLING SCHEDULE:

The contractor shall prepare and furnish to the purchaser and the Engineer within two months

from the date mentioned in the contract, a detailed billing schedule with break up price

schedule along with the progress payment with identifiable quantities of work according to the

break up price schedule, for purchaser’s/ Engineer’s approval. Progress payment shall be made

to the contractor based on the approval of the billing schedule and terms and condition

mentioned in the contract.

The billing schedule shall be submitted by the contractor in soft copies to the purchaser/

Engineer in the text format for approval. After the finalisation and approval of the Billing

Schedule, the same shall be submitted by the contractor for incorporati ng in “SAP” system.

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TIMELY SUBMISSION OF FINAL BILL:

It is the contractor’s responsibility to submit the final bill within two months from the

completion of the job and claim for extra job to the purchaser. Even the purchaser reserves

the right to reject any claim for job/extra job until the details of the previous job are not

submitted within one month of completion of the job.


The final bill must be submitted with the following documents:

1. No claim certificate,

2. Store clearance certificate,

3. Wage clearance certificate,

4. Gate pass clearance certificate,

5. Reconciliation statement for materials issued by the purchaser,

6. Safety performance of the party,

7. Any other documents mentioned in the order, etc.

PROVISIONS OF WORKMEN COMPENSATION ACT:

The contractor must keep the purchaser aware of the claims or proceedings for compensation

under the provisions of the Workmen’s Compensation Act so that the purchaser can make

suitable arrangements for any costs or expenses incurred to the purchaser due to such claims.

Even the purchaser is obliged to pay compensation to a workmen employed by the contractor

or sub contractor’s in the execution of the contract which the purchaser can recover by

deducting that particular sum of money from the dues of the supplier. In such a case, the

purchaser is not to be responsible for any claims made against the supplier until the purchaser

either for some issues or handling the full security for all costs. This can make the purchaser

liable to an extent of contesting such claims.

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CONCLUSION

Reducing the procurement lead time is actually the main issue from where a company can benefit

itself not only in terms of time, money and resource utilization but even can construct , improve

and include the best cost cutting strategy maintaining high quality and standardisation. But here,

the main problem is that there are a variety of scopes for reducing the lead time but there after

organisations are not able to reduce it.

On the other hand, reduction in the lead time can only be achieved if

proper and suitable measures are implemented. This can lead further in reducing not only the

lead time but also the risk, total cost of ownership enhancing revenue growth for a company.

Executive professionals need to understand the main causes of the procurement lead time and

analyse, plan and strategize accordingly in order to have a clearly defined business strategy.

Reducing inflexibilities and complexities can be a major task for reduction and a proper initiative

for a well defined strategy to begin. Negotiation, being an important time consuming aspect has

to be taken great care and executive professionals must develop their negotiation skills in order to

make the discussions and negotiations effective with the supplier as well as the customer.

Here, apart from the complexities, strategic sourcing also had played

an economic role in reducing the overall cost and time benefiting the organisation in the form of

internet implementation making a simpler way of communication amongst the professionals.

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Therefore, reducing the procurement lead time can create a profound impact not only for a short

term but for generating huge businesses and reshaping the whole supply chain process applicable

in the long run for a successful company.


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Documents

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