SYNOPSIS

ITEM PARTICULARS REMARKS

Name of Student AZAD KHAN

Roll no of student

Address for House no -9, Road no 1,

correspondence Azad nagar,mango,Jamshedpur
Telephone 9431972636,9931979860,
E-mail [email protected]
Name of Guide G.D.Pandey
Designation Course Coordinator
Address Room no 6,Rusi modi center,Jublee park
road,Sakchi ,Jamshedpur
Proposed title of Supply Chain Management at USHA
project 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 Cost
3.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/ This all the study may help the organization

recommendation and improve the efficiency of Supply chain
management.
Approved/Not
approved
Comments/Suggestion

2
 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.

3
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

4
SUPPLY CHAIN MANAGEMENT

An Overview

5
 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.

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

8
where demand information and actual customer order exerts its influence on
manufacturing. After orders are received, the product is pulled by demand preferably
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

9
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.

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).

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

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:
13
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
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 1994

Re – Certification to ISO 9002: 1994 : May 1996
1st Re – Certification to ISO 9002: 1994 : May 1997
2nd Re- Certification to ISO 9002: 1994 : May 2000
3rd Re- Certification to ISO 9002: 1994 : May 2003
Certification to ISO 9001: 2000 : Nov 2006
Certification 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)

17
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)

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 T.P.M Policy

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 to
ensure 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
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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
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 Company Employees Purchase Other Total Purchased
No material %
of total
1 Tata Motors 7204 57000 15326 79530 72
2 BPCL 6456 393649 83185 483290 81
3 Asian Paint 1065 8475 3556 13096 65
4 Raymond 16803 23926 55722 96451 25
5 Cipla 734 7155 3850 11739 61
6 Grasim 326 1204 2476 4006 30
7 L&T 6240 37110 48420 91770 40
8 HPCL 5474 443031 83755 532260 83
9 Bajaj Auto 2838 26883 13097 42819 63
10 Tata Power 1440 24704 11611 37555 65
11 Tata Chemicals 697 2599 10183 13479 19
12 Hindalco 2228 23279 16187 41694 56
13 Tata Steel 12553 13979 50176 76708 18
14 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

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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).

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 DEPARTMENT

The 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.
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 • 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

• 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.

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(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
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.

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(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
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.

24
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.

25
PURCHASE PROCEDURE

The procedure of purchase is show in the flow chart

Procedure in Purchase Function

Requirement from user Department (PR)

Send Enquiry to the Vendors (RFQ)

Receive the Quotation from Vendors

Tabulation

Negotiation

Place the order

Follow up

Receiving

Inspection

Goods Receipt Note

Rejection Memo

Payment Made

26
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

27
 5. How much quantity required.
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.

28
  Description of item
 Terms & Condition
 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.

29
 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”.

30
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).

Tap

Source
or Input

INVENTORY
Cistern

Drain Plug
Usage of Output

Graphical depiction of inventory model:

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

31
 L L L

S
t
o
c
k

L
e
v
e
l

O A B C

Time Periods
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.

32
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:

33
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.

34
  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
st
 As on 31 December of the same year = Rs. 17.16 Lacs

2. Average inventory holding during a year = Rs. 15.00 Lacs

3. 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

35
 - 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 %

36
  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,

37
SUPPLY CHAIN MANAGEMENT

Identify The Need Of Customer

Requirement of Our Product

Purchase Order by Customer

Registration of Customer P.O.

Sales Order Processing

Issue Delivery Order

Derivation of Bill of Materials

38
 Issue Purchase Requisition

Materials Procurement

Manufacturing, Quality Inspection

& Dispatch

Customer Feedback

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
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)

CONTROLLER OF PURCHASE PRESEDENT (WORKS & MINES)

Raw Materials Job/Works Coctracts Refractories Stores & Spares

Dy G.M. PUR SR. MGR. PUR Dy G.M.MAT MGR.PUR

MGR.PUR
MGR.PUR Dy MGR.PUR
ASST.MGR.CUST

ASST MGR.PUR
ASST OFFI.PUR
PUR.ASST PUR.OFFICER
ASST OFFI.PUR

PUR.OFFICER

PUR.ASST

ASST MGR.PUR

40
 PUR.ASST

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
(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/-
42
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 :

43
Sl No Requirement` Actual Year Target Year
07 - 08 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

Confirmed Indents,SIC Indent,Planning Item

To Check & Review Item

NO YES
Rate Contract

Small Value/ One time Purchase Preparation Of P.O

Selection Of Appropriate Source

Floting Enquiries To Select Supplier

Cash Purchase Signing of Order by
Receiving Offers Appropriate Authority

Formal P.O Making Comparative Statement

Negotiation with Appropriate

Supplier & Order Finalisation

Release of P.O (Record In File)

Follow Up of P.O

Receipt of Materials at Stores

44
 Inspection by Q.A (Incoming)

YES NO
Acceptance
Acceptance though
Joint Approval
GRN Approved Matt. Rejection information
to Pur.Dept. for Replacement

Materials Stored On Receipt of Matt to Follow

inspection procedure Again

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
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.

46
 FLOW CHART NEW VENDER SELECTION

1 1. Data Collection (About Vendor)

2 2. Issue Vendor Assessment Questionnaires

3 3 .Scrutinizing Vendor Potentials

4 4. Visit Vendor Premises

5 5. Request to Send Sample With T.C

6 6. Sample Testing (By Q.C Department)

7 7 .Test Report & Comment of Q. C

8 8. Check Whether Report is Tallying with T.C

Yes No
9. If yes, Recommend vendor
9
10 10. f no, Reject Vendor

11 11. Place Trial Order

47
 12 12. Check the quality

Yes 13. If Yes, Recommend Vendor for Registration

13 No
14. If No, Reject vendor
14

15 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
 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.

Distribution of Items
250

200
No of Items

150

100

50

DRI MBF SMS WRM Bar Mill Misc

Details Of KEY Suppliers

49
 TARGET COMPLIANCE (AS ON DATE)
Nos. of key High Medium Low High Medium Low
suppliers Critical Critical Critical Critical Critical Critical

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

Internal Lead Time

25

20
Lead Time days

15

10

0 50
ARC ITEM SIC ITEM DRAWING ITEM

Type of Items
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 .

51
 : 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 .

DETAILS OF NONMOVING & OBSOLETE ITEMS (value in Rs)

Tr-Year It-Cat. GNL INS OBS Grand Total
Prior April-2000 Fe-Alloys 33998.88 33998.88
Refractory 288764.92 588113.22 876878.14
Stores-Spares 4231445.26 4743438.35 849146.37 9824029.98
April-2000 Total 4554209.06 4743438.35 1437259.59 10734907.00
Inventory Carrying Cost
@ 25 % Per Year 1138552.27 1185859.59 359314.9 2683726.75
2000-2001 Refractory 115068.23 779437.97 894506.20
Stores-Spares 971405.30 3527924.39 278847.50 4778177.19
2000-2001Total 1086473.53 3527924.39 1058285.47 5672683.39
Inventory Carrying Cost
@ 25 % Per Year 271618.38 881981.1 264571.37 1418170.85
2001-2002 Refractory 350752.45 537721.52 372898.16 1261372.13
Stores-Spares 647481.35 746010.88 760666.08 2154158.31
2001-2002 Total 998233.80 1283732.40 1133564.24 3415530.44
Inventory Carrying Cost
@ 25 % Per Year 249558.45 320933.1 283391.06 853882.61
2002-2003 Refractory 608033.58 608033.58
Stores-Spares 1116573.46 1559659.21 486491.26 3162723.93
2002-2003 Total 1724607.04 1559659.21 486491.26 3770757.51
Inventory Carrying Cost
@ 25 % Per Year 431151.76 389914.8 121622.82 942689.38
Grand Total 8363523.43 11114754.35 4115600.57 23593878.34
Total Inventory Carrying
cost @ 25 % per Year 2090880.86 2778688.59 1028900.14 5898469.59

52
 Obsolete, Non-Moving Item & Value
Year Total Item Which Total Item Value Carrying Cost @ percentage
not moved from Which not moved 25 % of total value
1/4/00 to 31/12/00 from 1/4/00 to Which not moved
(out of 20070) 31/12/00 from 1/4/00 to
(in no) ( Value in Rs ) 31/12/00
( Value in Rs )
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 Stored Item & their Obsolete or Non- Obsolete or Non-
master value Moving Item & their Moving Item
Till July 08 value percentage of total
Till 20/3/2008 ( Which not moved stored item ( Which

53
 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 Total Item Value Carrying Cost @ percentage
not moved from Which not moved 25 % of total
1/4/00 to 31/4/03 from 1/4/00 to value
(out of 20975 31/4/01 Which not moved
(in no) ( Value in Rs ) from 1/4/00 to
31/4/03
( Value in Rs )
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

54
Items Value Which Not Moved From 1/4/00 to 31/3/03
18000000

16000000
Value of Items (Value in Rs )

14000000

12000000

10000000

Item Value
8000000

6000000

4000000

2000000

0
2000-2001 2001-2002 2002-2003

Year

55
 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

Obsolete & Non-Moving Items and Value Year Wise

9000000

8000000

7000000

6000000
Value of Items

5000000 GNL
INS
4000000
OBS
3000000

2000000

1000000

0
2000-2001 2001-2002 2002-2003
Year

56
 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

Obsolete & Non Moving Items Year Wise

16000000

14000000
Value of Items ( Value in Rs )

12000000

10000000

Refractory
8000000
Stores-Spares
6000000

4000000

2000000

0
2000-2001 2001-2002 2002-2003

Year

57
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.

58
 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.

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.

59
 • Better price and favorable purchase terms.

• Ease of work with lesser inventory.

• Healthy business relation

Disadvantage:

• 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 :
60
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

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

61
 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

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.

62
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.

63