CHAPTER 1.

INTRODUCTION

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1.1 COMPANY’s PROFILE:

HPCL-Mittal Energy Limited (HMEL) is a joint venture between Hindustan Petroleum

Corporation Limited (HPCL)- a Government of India Enterprise engaged in the

business of oil refining and marketing and Mittal Energy Investment Pte Ltd,

Singapore - a Lakshmi N Mittal Group Company. Both the JV partners hold a stake of

49% each in the company, the rest 2% is held by financial institutions. HMEL is

building a Grassroot oil refinery of 9 MMTPA at Bathinda in Punjab, called Guru

Gobind Singh Refinery Project. The project is expected to be completed in 2011.

The refinery will produce petroleum products complying with Euro IV emission norms

with Captive Power Plant for 165 MW and Crude Oil pipeline from Mundra (Gujarat) to

Bathinda with Single Point Mooring (SPM) and Crude Oil terminal at Mundra.

1.2 GURU GOBIND SINGH REFINERY PROJECT

1.2.1 Project Vision

To build and operate best in class petroleum refinery using state of the art technologies

to ensure protection of the environment, health and safety of the community. The

company will be a model of excellence in fulfilling its social responsibilities, meeting

stakeholder aspirations, caring for its employees and complying with government laws

and regulations.

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1.2.2 Project Mission

HMEL shall plan, design, construct, commission and operate an energy efficient and

environment friendly Greenfield refinery at Bathinda, Punjab along with associated

infrastructure facilities. The company shall endeavor to achieve excellence in all aspects

of project management while successfully implementing the project within the

scheduled time, budgeted cost and desired quality standards.

1.2.3 Project Details

The Guru Gobind Singh Refinery will be a zero bottoms, energy efficient, environment-

friendly, high distillate yielding complex refinery that will be producing clean fuels and

polypropylene by processing heavy, sour and acidic crudes.As part of this project, the

following are being established:

Grassroot refinery of 9 MMTPA in Bathinda, Punjab.

Cross-country Crude Oil Pipeline (approx. 1014 km) from Mundra to Bathinda

traversing through the states of Gujarat, Rajasthan and Haryana.

Crude receipt facilities - Single Point Mooring ( SPM) buoy capable of handling

Very Large Crude Carriers (VLCC) for crude import located at Mundra, Gujarat,

India.

Crude Oil Terminal (COT) approximately six kms. away from the sea shore at

Mundra, Gujarat.

Captive Power Plant of 165 MW for refinery power and steam requirements.

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The refinery will be a world class, state of the art refinery incorporating the latest

technologies enabling it to excel the current specifications available in the country. The

refinery configuration has been developed after extensive linear programming, keeping

the domestic and regional requirements in mind, the latest cost effective technologies

available for generating required fuel specifications, and future changes. The present

configuration translates into one of the highest Nelson Indexes* for the refinery amongst

all the refineries in the country.

This refinery is the single largest investment at any location in Punjab and is the first Oil

and Gas industry being set up in Punjab. The Refinery is expected to create a large

number of jobs directly and indirectly in the region, which will lead to industrialization

and development of Punjab.

HPCL-Mittal Pipelines Limited is a wholly owned subsidiary of HPCL-Mittal Energy

Limited. The objective of HPCL-Mittal Pipelines Limited is to set up and operate

business related to crude oil receipt, its storage and cross-country transportation. Mundra

- Bathinda Pipeline Project is implemented by the Company for transporting crude oil

from Mundra Gujarat to HMEL’s Guru Gobind Singh Refinery at Bathinda, Punjab.

The project consists of the following facilities being set up to meet its objective:

Single Point Mooring System (SPM), 10 kms from the shore in the Gulf of

Kutch to unload crude oil from ocean tankers.

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An offshore / onshore pipeline of approximately 10 kms offshore section and 6

kms onshore section to transfer the crude oil from the SPM to the Crude Oil

Terminal (COT).

A Crude Oil Terminal (COT) approximately 6 kms away from the sea shore, of

over 8,00,000 KL capacity at Mundra  in Gujarat, India.

A 1,014 km long cross country pipeline, including one Intermediate Pumping

Station to transfer.crude oil from COT at Mundra to Guru Gobind Singh

Refinery at Bathinda. The pipeline named Mundra–Bathinda Pipeline (MBPL)

route passes through the coastal plains & saline mud flats of Rann of Kutch in

Gujarat, dry cultivation fields & eastern fringe of Thar Desert in Rajasthan and

Ghagghar Flood Plains in Haryana - crossing 24 rivers and 51 canals along the

route up to the refinery premises at Bathinda in Punjab.

An Optical Fibre Cable (OFC) is being laid alongside the pipeline for

telecommunication and data transfer between all the stations along the route of

the pipeline.

As a part of environment protection, an Effluent Treatment Plant shall be provided at

COT for treating all the effluent generated at the dispatch terminal before release.

Moreover, a 30 m wide belt around the COT and up to 25% of land for all intermediate

pumping stations shall be dedicated to developing green belt.

A Disaster Control and Management Plan is being developed to control and manage any

disaster like accidental spillage and its consequences.

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Fig i) Organisation structure of HMEL

1.3 OBJECTIVES:

This project aims at acquiring a thorough knowledge and understanding of the

Business processess involved in the procurement process at Guru Gobind Singh

Refinery Project,Bathinda.

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CEO

COOProcure-

ment

Head Of

Project

Head Of Finance & Acc.

Head Of Treasury

Head Of

Market-ing

(V.P.)

Project Control

Requisi-tion

SPMProcess(V.P.)

Engg.(GM) Purchase vendor

IT(CM)

Mainte-nance

Opera-tions(V.P.)

Security

GeneralIT

ServiceSAP

HeadOffice

WorkSite

1.4 SCOPE OF STUDY

This entire project will revolve around the procurement process occurring at Guru

Gobind Singh Refinery Project which is carried out by HMEL. Materials management

assumes responsibility for whatever happens in purchasing, inventory, invoicing or any

other area connected with materials.

The scope of study will include understanding the procurement activities that

takes place in the organization.

The study will cover the steps involved in the procurement of materials in the

GGSR Project of HMEL.

This project will try to study the business process involved in the procurement

process during the constructional phase of Guru Gobind Singh Refinery,

Bathinda by HMEL.

This project will also include small overview of business process involved in the

procurement process during the Operational Phase of Guru Gobing Singh

Refinery, Bathinda.

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CHAPTER 2:

THEORITICAL

FRAMEWORK AND

REVIEW OF

LITERATURE

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OVERVIEW OF MATERIALS MANAGEMENT

Fig. ii) Materials Management

2.1. MASTER DATA

The Materials Management functionality includes a number of important master data

files.The Material Master and Vendor Master data files are at the core of

Purchasing,Inventory Management and Invoice Verification.

2.1.1 MATERIAL MASTER

The material master record is the main source of material-specific data in an enterprise.

The material master contains information of all the materials that a company procures,

produces, stores, and sells. It is the company's central source for retrieving material-

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specific data. This information is stored in individual material master records. The

material master is the central pool of information where material specifications are

entered only once and same item code can be used repetitively as and when required.

The integration of all material data in a single database object eliminates redundant data

storage. Every area, such as Purchasing, Inventory Management, Materials Planning,

and Invoice Verification can use the data stored.

Fig iii) Material Mater Record

The material master is subdivided into information grouped by user departments

(functions). Each user department has a different view of the material master record and

is responsible for maintaining the data to support their function.

You can assign materials with the same characteristics to the same material type.

Material types include raw materials, semi-finished products, and finished products, for

example.

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2.1.2 VENDOR MASTER

The vendor master contains information of all the vendors that a company has business

relationship for procurement of materials, for providing service, for transportation, for

payments etc. It is the company's central source for retrieving vendor specific data. This

information is stored in individual vendor master record.

The vendor master record contains the following information –

General Data: The data is valid for whole client i.e. in our case HMEL. It

includes the vendor’s address, bank & other details etc.

Accounting data: This is maintained at company level. It comprises data such

as the number of the reconciliation account and payment method.

Purchasing data: This data is maintained for each purchasing organization. It

includes the PO currency, Price basis, Partner data, excise, customs and

various control data.

The vendors can be categorized as: Material Vendors, Service Vendors, Transporters,

Finance/Term Loan vendors, Government statutory bodies, Own Plants and group

companies. These are to be defined as vendors in the system.

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Fig. iv) Vendor Master Record

2.2 PURCHASING

The purchasing organization is responsible for the enterprise’s purchasing requirements.

You can incorporate Purchasing into the company structure by assigning the purchasing

organization to company codes and plants.

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The Purchasing Group can be defined as a person or group of people dealing with

certain material or group of materials purchased by through the purchasing organisation.

2.2.1 PURCHASING INFO RECORD

Purchase Info record consists of information specific to a material and a vendor. This

can then be specified by a particular purchasing organization.

The purchasing information record is used in the purchase order where information from

the record is defaulted into the purchase order. Information such as purchasing group,

net price, invoice verification indicators and delivery tolerances all can be entered into

the purchase info record.

There are four categories of purchase info records that can be created. These are:

Standard Info Record: Standard Info Record contains information supplied by

the vendor for a specific material , service or group of materials or services

Pipeline Info Record : Pipeline materials such as electricity, water, oil etc are

supplied by utility vendors and used by customer through pipeline withdrawals.

Pipeline info record contains information for such kind of material/vendor

combination.

Consignment Info Record: When a vendor supplies material to be stored at a

customer’s site for customer withdrawal, the purchasing department can create a

consignment purchasing info record for that material.

Subcontracting Info Record: This type of info record is created when the order

is a subcontracting order.

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2.2.2 PURCHASE REQUISITION(PR)

The purchase requisition is the procedure by which general users or departments can

request the purchases of goods or services that require processing by the purchasing

department.

Purchase requisitions are internal documents requesting a certain quantity of material or

service on certain date. A purchase requisition is an authorization for a purchasing

department to procure goods or services. It is originated and approved by the department

requiring the goods or services.

It contains a description and quantity of the goods or services to be purchased, a required

delivery date, account number and the amount of money that the purchasing department

is authorized to spend for the goods or services. Often, the names of suggested supply

sources are also included.

A purchase requisition is owned by the originating department and should not be

changed by the purchasing department without obtaining approval from the originating

department. A purchase requisition is not a purchase order and therefore should never be

used to purchase goods or services or used as an authorization to pay an invoice from a

supplier or service provider.

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Purchase requisitions can be created:

– Manually

– Automatically:

1.Planning Function(MRP,MPS)

2.Production Orders

3. Sales Orders

2.2.3 REQUEST FOR QUOTATION(RFQ)

Once the PR has been received and has been processed by the purchasing

department, there may arise a need wherein the purchasing department offers a

request for quotation (RFQ).An RFQ typically involves more than the price per item.

Information like payment terms, quality level per item or contract length are possible

to be requested during the bidding process.

To receive correct quotes, RFQs often include the specifications of the

items/services to make sure all the suppliers are bidding on the same item/service.

Logically, the more detailed the specifications, the more accurate the quote will be

and comparable to the other suppliers. The suppliers have to return the bidding by a

set date and time to be considered for an award.

An RFQ allows different contractors to provide a quotation, among which the best

will be selected. This need may arise because of a number of reasons as:

a. Material not previously used at the company.

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b. Material being used but has no particular identified vendor.

c. New vendor required due to termination of contract, i.e. quality issues

d. New vendor required due to government regulations.

e. New vendor due to logistical issues.

2.2.4 CONTRACTS

A contract is an agreement between the vendor and customer for the vendor to

supply material to the customer at an agreed price over a specified period of time.

These contracts can be either based on total quantity or total value.

There are two types of contracts that can be made:

a. Quantity Contract – As the name suggests this contract allows the purchasing

department to agree with the vendor on a set quantity of material or services.

b. Value Contract --- A value contract allows a purchasing department to cap the

spending with one particular vendor. The value contract is not concerned with the

quantity of material supplied by the vendor but by the total spending with the vendor

for the material.

2.2.5 PURCHASE ORDER(PO)

A purchase order is a commercial document issued by a purchasing department

(buyer) to a vendor (seller), indicating the materials, quantities and negotiated prices

for materials or services that the seller will provide to the buyer.

Sending a PO to a supplier constitutes a legal offer to buy products or services.

Acceptance of a PO by a seller usually forms a once-off contract between the buyer

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and seller so no contract exists until the PO is accepted. POs usually specify terms of

payment, incoterms for liability and freight responsibility, and required delivery

date.

Purchase order usually contains the following:

• Purchase order number

• Date of Purchase Order

• Billing Address of Buyer

• Special Terms or instructions

• List of Items with quantities

• Negotiated price of each item

2.3. INVENTORY MANAGEMENT

The Inventory Management process within SAP corresponds to movements inside the

plant that can create a change in stock levels within the storage location designated to

that plant. The movement of stock is either inbound from a vendor, outbound to a

customer, a stock transfer between plants, or an internal transfer within a plant.

For every goods movement two types of documents are created in SAP:

1. Material Document

2. Accounting Document

The accounting document describes the financial aspects of goods movement and is

only relevant is material is valuated. Various functions of inventory management are:

To store just enough quantity in view of inventory carrying cost.

To keep safety stock to avoid shortage

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Numbers of orders should be such that ordering cost also is reduced.

Extra care to be taken in ordering and storing of perishable goods

Understand the seasonable availability of some items and their pricing

and arrange right quantity at right price and of right quality.

Know the trend of ups and down in production items, quantity and

accordingly adjust the purchases

Assembly needs, variety/ various items, see that purchase and availability

in ‘Sets’ required

Keep minimum stock of high value items and monitor their price trend.

2.3.1 GOODS RECEIPT

Goods receipt process allows the receipt of material from a vendor or from in-house

production process. A goods receipt is an increase in stock that is triggered because of:

• Receipt from a production order.

• Receipt from a purchase order.

• Initial Entry of inventory.

You can post goods receipts from vendors to quality inspection stock for the

following reasons:

• If the material always has to undergo quality inspection before it is used. In this

case, the employee responsible for the purchasing data in the material master

record sets the quality inspection indicator in the material master record. When

you order the material, the indicator is copied to the purchase order.

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• If the material is received from a particular vendor and has to undergo quality

inspection first. For example, you must always test the quality of goods if they

have been procured from a new vendor.

• If you decide at the time of goods receipt that the material has to undergo quality

inspection, for example, because you established that the packaging is damaged

and suspect that the goods were also damaged during transportation. You then set

the quality inspection indicator in the goods receipt item.

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Fig. v) Goods Receipts

2.3.2 GOODS ISSUE

Goods Issue is a reduction of stock triggered by one of the following:

• Issue with respect to reservation

• Return of material.

• Material Scrapping

These are the movement types that identify the various goods issue.

2.3.3 STOCK TRANSFER

A stock transfer can occur physically , for example by moving material from one storage

location to another, or logically , moving stock from quality inspection status to

unrestricted. Stock transfer normally refers to a physical move , while transfer posting

usually describes the logical move.

Stock transfer occurs in three distinct ways:

• Storage location to storage location

• Plant to Plant

• Company Code to Company Code

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Fig. vi) Stock Transfer

2.3.4 PHYSICAL INVENTORY

Regular physical inventories in the plant,combined with improvements in inventory

accuracy are important goals for companies. Physical inventories can be customized to

produce faster and more accurate results,lowering inventory cost and improving

customer service levels.

Physical inventory can be performed on stock that is held in unrestricted use , quality

inspection or on blocked status. Physical inventory can also be performed on the

company’s own stock and special stocks such as returnable packaging and consignment

stock at customer locations.

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2.4.INVOICE VERIFICATION

2.4.1 INVENTORY VALUATION:

The SAP system allows you to valuate stocks of a material either together or separately,

that is, according to different valuation criteria. Split valuation is necessary if, for

example:

· Stock from in-house production has a different valuation price than externally procured

stock.

· Stock obtained from one manufacturer is valuated at a different price than stock

obtained from another manufacturer.

· Different batch stocks of a material have different valuation prices.

The way the stocks of a material are valuated depends on how you define the following:

· Valuation category

(This defines whether the stocks are valuated jointly or separately. If stocks are to be

managed separately, it also specifies the criteria used to valuate the stocks, that is,

whether they are valuated by origin, in-house production/external procurement, or

individual batches.).

· Valuation type

(This is a further subdivision of the valuation category. For example, if the valuation

category is origin, a company may want to define the valuation types stock from Los

Angeles and stock from Detroit.)

This data is stored in the material master record. In SAP there are two ways of valuating

stock:

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i. Joint Valuation

(If you want to valuate all stocks of a material at the same price, you specify neither a

valuation category nor a valuation type.)

ii. Split Valuation

If you want to valuate stocks of a material separately, you must create a material master

record with the appropriate valuation category. This record is called the valuation header

record. Each material always has only one such record for each company code or plant

(depending on whether the material is valuated at company code level or plant level).

Once you have specified the valuation category, you can create a material master record

for each quantity of the material you want to valuate separately, with the appropriate

valuation type and accounting data.

2.4.2 Logistics \ Vendor Invoice Verification

Invoice Verification is part of the accounts-payment process in which the vendor is paid

for materials or services that they have provided to the customer. This verification is

important as it ensures that the quantities and the pricing are all correct and neither party

has made an error.

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Procurement is the acquisition of appropriate goods and/or services at the best possible

total cost of ownership to meet the needs of the purchaser in terms of quality and

quantity,time&location.

Fig. vii) Procurement Process

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CHAPTER 3:

BUSINESS

PROCESSES

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BUSINESS PROCESS OF PROCUREMENT IN THE

CONSTRUCTIONAL PHASE OF REFINERY

Engineers India Limited (EIL) is managing the engineering, procurement and

construction for the refinery project. The items involved in Procurement process are:

1. BOUGHT OUT ITEMS: HMEL has classified all items as Bought Out Items which

consists of both Bulk and Tagged Items.

Tagged items are those that are purchased specifically for a particular Unit. Eg: CDU or

VDU. These materials are stock able and when ordered are assigned to the unit and there

consumption is entirely within the same unit for which they have been ordered. Tagged

items are mainly equipments such as columns, vessels, pumps etc and instruments such

control valves, safety valves, transmitters etc and electrical panels.

Bulk items items which are procured in bulk feeding to multiple units and these too are

stock able. Bulk items are pipes, fittings, flanges, valves, electrical & instrumentation

cables etc.

2. CONSUMABLES (Or OFFICE REQUIREMENTS): Office Requirements are

those items that are required on a day to day basis for the working of the organization.

These items can be stock able or non stock able, Eg: stationery etc.

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3.1 CSBP(CURRENT STATE BUSINESS PROCESS) FOR

PURCHASING INVOLVING EIL

All the Brought-out items,i.e. tagged and non-tagged items are purchased by EIL for

construction of refinery.

Fig. viii) Purchasing Process of Bought-out items

Inputs Responsibilty Type of Input Category of Input Mode of

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(Data/

Activity /

Process)

(Vital / Essential /

Desirable)

Information

1.Material Requisition EIL Activity Essential Soft copy/

Physical

Document

2.Request for Quotation EIL Activity Essential Physical

Document

3.Quotation Comparison

/Negotiations

EIL/HMEL Activity Essential Physical

Document

4.Purchase Order HMEL Activity Essential Physical

Document

Table i) Activities involved in procurement of bought-out items

STEPS IN PROCUREMENT PROCESS

1. RAISING THE MATERIAL REQUISITION :

Material Requisition(MR) is raised for availing the supplies of Tagged and bulk items by

EIL. For Tagged items only one time MR is raised and for Bulk items MR is raised

several times as the engineering progresses.

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To facilitate the availability of materials in early phase in order to start the construction

of refinery is based on piping and instrumentation diagram, plot plan and equipment

layout. Later on when drawings are prepared and 3D modelling is done on software(PDS

package) Material Take Off(MTO) System is generated through computer automatically.

Bulk materials procurement is done in several phases for continuous feeding of material

to site for construction.

MTO system is responsible for raising the MR for procurement of bulk items.For GGSR

refinery 7 MTO have been prepared till date.

2. SUBMISSION OF APPROVED VENDOR LIST TO HMEL:

A Vendor List is maintained by EIL which contains the names of approved vendors. EIL

submits the Approved Vendor List(AVL) to HMEL for approval. HMEL team wherein

does the required modification of the vendor list if required. Once list is finalised,

modified list is transmitted back to EIL.

3. RFQ(REQUEST FOR QUOTATIONS) INVITATION

Based on the released MR items from the user department, Contract & Procurement

Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.

All the vendors should reply back their quotations within the stipulated due date. RFQ

contains the details of requirements of the company. Details includes information like

no. of units needed, description of materials required, etc. RFQ also mention the Terms

and Conditions of the order which a vendor should agree with.

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Interested Approved Vendor replies back to EIL by giving ACKNOWLEDEGEMENT

CUM CONSENT LETTER.

EIL might go for some additions in their requirements. EIL can issue ADDENDUM, if

required, stating the increase in number of units required or any variation in

specification required.EIL can increase the due date for submission of Quotations

accordingly.

4. QUOTATION SUBMISSION BY VENDORS

Interested Approved Vendor should reply back to EIL with their quotations in the form

of PRICED BIDS and UNPRICED BIDS in a format specified by EIL in two separate

sealed packets.

UNPRICED BIDS contains the technical details of material without any mentioning of

price.

PRICED BIDS contains the details of proposed materials along with their unit price and

total price.

Earnest Money Deposit(EMD) is a deposit in monetary terms taken by EIL from

interested vendors as part of security in case of large orders. EMD is non-refundable and

retained by the company in case the selected vendor backs out later after the contract

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signing. After raising of LOA to the successful vendor, EMD deposits of all

unsuccessful vendors are returned back to them.

In case of any variation in the technical specification of available material with vendor

against the proposed material then vendor should clearly specify it to EIL.

5. TECHNICAL EVALUATION OF VENDOR(IF REQUIRED)

The department which has raised the Material Requisition is responsible for technical

evaluation of vendor. The department checks the approved vendors to determine

whether they are technically fit to supply the proposed material or not.

In case of multiple departments involvement, vendor is technically approved by each

department involved.

UNPRICED Bids are given to concerned department to analyse the technical

acceptability of vendor. Only the bids of technically qualified vendors are allowed go for

commercial evaluation.

6. PRICE BID OPENING AND COMMERCIAL EVALUATION OF VENDORS

All the technically qualified vendor’s bids go for commercial evaluation. Commercial

evaluation is done by Contracts & Procurement Department of EIL. commercial bids

will be opened by the authorized persons (consisting EIL & HMEL) and the quotations

will be maintained for each vendor.

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A price comparative statement is prepared for vendors and analysed by EIL. Price

comparison process will involve the comparison of both cost price and operational cost

of material for each vendor.

Vendors are arranged in the category of L1, L2, L3 and so on depending upon the prices

in their respective quotations. The lowest price quoting vendor is given category L1, the

next higher price quoting vendor is given category L2, and so on. L1 category vendors

are given preference over higher category vendors, i.e. , L2 and L3.

7. DRAFT LOA(LETTER OF AWARD) RAISING :

A price comparative statement is prepared by EIL and recommendation report is sent to

HMEL along with Draft LOA (Letter of Award) for the recommended vendors as per

the original quote.EIL recommendation report might contain suggestion for multiple

vendors.

8. NEGOTIATIONS AND FINAL LOA ISSUING:

Recommended vendors are invited by HMEL for further negotiation in prices. HMEL

team shall negotiate the prices further with the vendors depending upon certain terms &

conditions.

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Final comparison is done by HMEL team after the negotiations. As per DOP(Delegation

of Power), Final LOA is raised for selected vendor. The copy of the same is forwarded

to EIL.

Letter Of Award is authorisation for a particular vendor to start with their work for

making arrangements for supplies. LOA gives the details about the proposed materials.

Detailed Purchase Order is followed by LOA later contain further terms & conditions.

LOA should be accepted and acknowledged with proper vendor signature and stamp.

Acknowledged LOA should be returned back to the company.

9. PURCHASE ORDER(PO) RELEASING PROCESS:

A draft PO is raised by EIL based on which a final PO is prepared by the HMEL team

and issued to the vendor. PO contains the complete details about the expected quantity

and final prices agreed upon by both vendor and HMEL during final negotiation

sessions.

PO is released by HMEL according to releasing strategy and forwarded to vendor. The

copy of final PO is forwarded to EIL.

Once the PO cycle is over a PR containing the entire details of the materials and quantity

etc is prepared and issued by EIL to the vendor with a copy to HMEL.

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10. MANUFACTURING AND DELIVERY OF MATERIAL BY VENDOR

Vendor starts the process of manufacturing the materials according to the specifications

mentioned in PO/PR. There is a frequent quality check visits done by EIL team during

the process of manufacturing of materials. Quality Assurance team of EIL checks that

the material conforms to the specifications and quality requirements of the company.

After quality checking process is over, a Certificate is issued to the vendor for quality

assurance of material to be supplied for work site.

Vendor makes the delivery of materials according to the terms & conditions as per

purchase order.

11. GOODS RECEIVING

Currently the EIL warehouse team manages the project based inventory. The legacy

system used by them is WAMS(Warehouse Management System) The warehouse

team receives the DAV (Dispatch advise voucher) from the vendor which is an

intimation that the vendor has dispatched the materials after the clearance of quality

inspection at the source. As per the DAV (having a unique no.) the EIL team

maintains their dispatch advice log (DAL) register.

The EIL team prepares DRR (Daily Receipt Report), once the goods are delivered to

the premises of HMEL & are pending for physical verification.DRR report is sent

daily to HMEL & Project site as first hand report of the availability of the goods. DRR

report is linked to DAL report with reference to the DAV Unique number.DRR report

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provides reference of material quantity received.

The MRR (Material Receipt Report), is prepared by EIL only after physical

verification of material against DRR. After MRR, material is available in the stock

register for issuing.

All the physical rejection, shortage, etc is maintained through OSRD (Over short

reject & damaged) report . Purchase action is initiated for OSRD items and insurance

claim is made.

12. INVOICING AND PAYMENTS

Payment terms are mentioned in PR/PO. For simple items like bulk material no

detailed bill is required as billing terms mentioned in PO\PR is sufficient. Further

detailed billing schedule is prepared for complex materials like major equipments.

Detailed billing schedule is prepared by vendor and submitted to EIL for approval.

Billing schedule consists of following heads for which billing break-up is made for

complex materials:

1.Process design

2.Detailed engineering

3.Ordering

4.Manufacturing & delivery

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5. Construction

As work progresses vendors & contractors submits the monthly invoices to EIL for

verification and forwarded to HMEL for payment. Vendors and contractors are given

advanced payments for initiating the production process against the bank guarantee.

Payments to vendor and contractor is done by two methods:

1.Direct payment: Money is transferred to the vendor and contractor directly in their

name.

2. Payments through banks: Upon the dispatch of material

i) Original invoice is submitted to Vendor’s bank by the vendor.

ii) Vendor’s bank submits original invoice to HMEL’s bank.

iii) HMEL makes the payments to its bank according to the invoice given by the

vendor.

iv) HMEL’s bank makes the payment to the vendor’s bank.

v) Vendor can collect the payments from his bank account.

After making the payments, Proof of payments made is generated. HMEL submits this

proof of payment to the transporter upon the delivery of materials.

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3.2. CSBP (CURRENT STATE BUSINESS PROCESS) FOR

PROCUREMENT INVOLVING HMEL ONLY(NON-EIL).

HMEL carries out the procurement process for consumables items only. Consumables

are those items that are required on a day to day basis for the working of the

organization. These items can be stock able or non stock able, Eg: Office stationery, etc.

Inputs Responsibilty Type of Input

(Data/

Activity /

Process)

Category of Input

(Vital / Essential /

Desirable)

Mode of

Information

1.Material Requisition HMEL Activity Essential Soft copy/

Physical

Document

2.Request for Quotation HMEL Activity Essential Physical

Document

3.Quotation Comparison

/Negotiations

HMEL Activity Essential Physical

Document

4.Purchase Order HMEL Activity Essential Physical

Document

Table ii) Various activities involved in procurement of consumables

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Fig. ix) Procurement process of consumables items

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STEPS FOR PROCUREMENT OF CONSUMABLES

1. LOCAL PURCHASING REQUISITION (LPR) RAISING:

Local Purchasing Requisition is raised by the concerned department upon the realisation

of need. Local Purchase Requisition goes to the Procurement department of HMEL.

LPR contains the details of proposed items, description and quantity required. It might

contain the information about the recommended vendors.

2. APPROVED VENDOR LIST :

HMEL maintains the approved vendor list for the process of selective bidding. HMEL

procurement department is responsible for maintaining the Approved Vendor List.

All interested vendors should satisfy all the norms, as stated by procurement department,

in order to get themselves registered in approved vendor list.

Approved Vendor List might contain single vendor or multiple vendor names for a

particular item.

3. REQUEST FOR QUOTATION RAISING:

Based on LPR raised, Procurement department of HMEL will identify the approved

vendors from Approved Vendor List. RFQ is floated to all the approved vendors

requesting the quotations from them. All the quotations received after the due date is

considered as invalid.

39

RFQ contains the details of requirements of the company. Details includes information

like no. of units needed, description of materials required, etc. RFQ also mention the

Terms and Conditions of the order which a vendor should agree with.

Interested Vendor can reply back to HMEL by giving ACKNOWLEDEGEMENT CUM

CONSENT LETTER.

HMEL might go for some additions in their requirements. HMEL can issue

ADDENDUM, if required, stating the increase in number of units required or any

variation in specification required. HMEL would increase the due date for submission of

quotations accordingly.

4. QUOTATION SUBMISSION BY VENDORS

Interested Approved Vendors should reply back to HMEL with their quotations in the

form of PRICED BIDS and UNPRICED BIDS in a format specified by HMEL in two

separate sealed envelope.

UNPRICED BIDS contains the technical details of material without any mentioning of

price.

PRICED BIDS contains the details of proposed materials along with their unit price and

total price.

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Earnest Money Deposit(EMD) is a deposit in monetary terms taken by HMEL from

interested vendors as part of security in case of large orders. EMD is non-refundable and

retained by the company in case the selected vendor backs out later after the contract

signing. After raising of LOA to the successful vendor, EMD deposits of all

unsuccessful vendors are returned back to them.

In case of any variation in the technical specification of available material with vendor

against the proposed material then vendor should clearly specify it to HMEL.

5. TECHNICAL EVALUATION OF VENDOR (IF REQUIRED)

The department which has raised the Local Purchase Requisition is responsible for

technical evaluation of vendor. The department checks the approved vendors to

determine whether they are technically fit to supply the proposed material or not.

UNPRICED Bids are given to concerned department to analyse the technical feasibility

of project.

Only the bids of technically qualified vendors are allowed go for commercial evaluation.

6. PRICE BID OPENING AND COMMERCIAL EVALUATION OF VENDORS

All the technically qualified vendor’s bids go for commercial evaluation. Commercial

evaluation is done by Procurement Department of HMEL. commercial bids will be

opened by the authorized persons and the quotations will be maintained for each vendor.

41

PRICED Bids are analysed by the Procurement Department of HMEL for commercial

feasibility. A price comparative statement is prepared for vendors and analysed by

HMEL team.

Vendors are arranged in the category of L1,L2,L3 and so on depending upon the prices

in their respective quotations. The lowest price quoting vendor is given category L1, the

next higher price quoting vendor is given category L2, and so on. L1 category vendors

are usually given preference over higher category vendors, i.e. , L2 and L3.

7. NEGOTIATIONS WITH SELECTED APPROVED VENDORS

Selected approved vendors are invited by HMEL team for final negotiations in price.

HMEL team shall negotiate the prices further with the vendors depending upon certain

terms & conditions.

Final comparison is done by HMEL team after the negotiations. After comparison

process , one vendor is selected for giving the supplies of items.

8. RAISING OF LETTER OF AWARD(LOA)

As per DOP(Delegation of Power), Final LOA is raised for selected vendor. Letter Of

Award is authorisation for a particular vendor to start with their work for making

arrangements for supplies. LOA gives the details about the proposed materials.

Detailed Purchase Order is followed by LOA later contain further terms & conditions.

42

LOA should be accepted and acknowledged with proper vendor signature and stamp.

Acknowledged LOA should be returned back to the HMEL.

9. ISSUE OF PURCHASE ORDER (PO):

After the selection of vendor, Purchase order is prepared and given to procurement

committee for approval. After the approval of PO, it is forwarded to vendor. Upon the

reception of PO, vendor can start with the process of making the material available.

10. MANUFACTURING AND DELIVERY OF MATERIAL BY VENDOR

Vendor starts the process of manufacturing the materials according to the specifications

mentioned in PO. There is a frequent quality check visits done by HMEL team during

the process of manufacturing of materials. Quality Assurance team of HMEL checks that

the material conforms to the specifications and quality requirements of the company.

After quality checking process is over, a Certificate of quality assurance is issued to the

vendor.

Vendor makes the delivery of materials according to the terms & conditions agreed upon

by both the parties.

11. GOODS RECEIVING

Good Received Note (GRN) is maintained by HMEL upon the receiving of material.

Service Entry Sheet (SES) is maintained by HMEL upon availing the services from

the vendor.

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12. INVOICING AND PAYMENTS

Payment terms are mentioned in PO. For simple items like stationary items no detailed

bill is required as billing terms mentioned in PO is sufficient.

As work progresses vendors & contractors submits the monthly invoices to EIL for

verification and forwarded to HMEL for payment.

Payments to vendor and contractor is done by two methods:

1.Direct payment: Money is transferred to the vendor and contractor directly in their

name.

2. Payments through banks: Upon the dispatch of material

i) Original invoice is submitted to Vendor’s bank by the vendor.

ii) Vendor’s bank submits original invoice to HMEL’s bank.

iii) HMEL makes the payments to its bank according to the invoice given by the

vendor.

iv) HMEL’s bank makes the payment to the vendor’s bank.

v) Vendor can collect the payments from his bank account.

After making the payments, Proof of payments made is generated. HMEL submits this

proof of payment to the transporter upon the delivery of materials.

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3.3 FUTURE STATE BUSINESS PROCESS (FSBP) FOR

PROCUREMENT PROCESS INVOVING HMEL(NON-EIL).

Future State Business Process(FSBP) includes the business processes after the

implementation of SAP ERP solution at HMEL. All the consumable goods like

stationary and other general office requirements are procured by HMEL directly.

Purchase Requisition (PR) would be raised by the user. Based on the requisition RFQs

would be invited from the identified vendors. On receiving the quotations the price

would be updated in the system and quotation comparison would be carried out.

Negotiations would be carried out by the HMEL team with the shortlisted vendor if

required. LOA (contract) would be prepared and released after approval based on the

release strategy.

A PO would be prepared with reference to the LOA or RFQ / Quotation and would be

released. In case of procurement of services, Service Purchase Orders shall be placed

containing Service Description / Specification, Service duration, quantum of service,

Terms and conditions etc. No Service Purchase order shall be made without reference to

quotation/LOA.

Source List providing the details of material and vendor combination shall be

maintained in the SAP system. If there is a single source or a source that is flagged as a

45

preferred vendor then the system will offer this vendor as the determined source.

However if there are a number of vendors on the source list that are valid by date

selection, then the system will offer the selection to the purchaser. A vendor can then be

selected from the list.

PURCHASE REQUISITION RELEASE PROCESS

Fig. x) Purchase Requisition release process(Post SAP)

46

LOA(LETTER OF AWARD) RELEASE PROCESS

Fig. xi) LOA Release Process (Post SAP)

47

PURCHASE ORDER(PO) RELEASE PROCESS

Fig. xii) Procurement Process of HMEL Procured items(Post SAP)

48

Goods receipt would be done in the system once they are received in the warehouse.

Service Entry Sheet would be created by the user on execution of services.

The duly authorized hard copy of vendor Invoice shall be forwarded to Finance

department of HMEL and LIV shall be posted in the SAP system by Finance

department. Unplanned delivery costs if any would be posted in a separate line item and

the cost of the same would be captured in a particular G/L account.

Fig. xiii) Invoicing (Post SAP)

49

Step # Activity Responsibility

/ Authorization

Tcode Remarks

Procurement Cycle

1 Create Purchase Requisition All users ME51N Create PR with all details

(quantity, specification,

required date etc) for all the

materials required along with

suggested Vendors, if

applicable, and estimated

value. Account assignment for

services would be “K” and

item category would be “D”.

For materials no particular

account assignment or item

category is required.

2 Change Purchase Requisition All users ME52N Change PR (addition/deletion

of item, change of quantity,

specification, required date,

etc) as required.

3 Display Purchase Requisition All users ME53N Display PR

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4 Release Purchase Requisition Identified

Group

ME54N Based on the release procedure

defined the PR is released.

5 Create RFQ Purchase

Officer

ME41 Create RFQ with reference to

PR. Put in all RFQs under a

single collective number.

Individual RFQ printout shall

be sent to all the recommended

vendors.

6 Change RFQ Purchase

Officer

ME42 Change RFQ (addition/deletion

of item, change of quantity,

specification, required date) as

required.

7 Print RFQ Purchase

Officer

ME9A Print RFQ and send to the

desired vendors.

8 Price Updation in Quotation Purchase

Officer

ME47 On receiving the quotations

back from vendors price

updation is carried out in SAP

9 Comparing of Quotations in

SAP

Purchase

Officer

ME49 Compare quotations based on:

a. Mean value Quotation

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b. Minimum value

Quotation

10 Create LOA Purchase

Officer

ME31K SAP Contract would be used as

an LOA. Account assignment

for services would be “K” and

item category would be “D”.

For materials no particular

account assignment or item

category is required.

11 Change LOA Purchase

Officer

ME32K If required changes would be

made in the document in case

of value change, the document

gets de released.

12 Display LOA Purchase

Officer

ME33K LOA can be displayed.

13 Release LOA Identified

Release

Group

ME35K

Based on the release strategy

identified the LOA is released

for sending it over to the

vendor.

14 Print / Reprint Purchase

Officer

ME9K

Print the LOA & send to the

vendor. LOA can be printed

only if it is in release status. In

52

case, reprint is required, fresh

message needs to be generated

in the system.

15 Create Purchase Order Purchase

Officer

ME21N

Create Purchase Order with

reference to the quotation,

LOA etc. – Detail purchase

order with all relevant details,

terms and conditions, pricing

elements etc.

16 Change Purchase Order Purchase

Officer

ME22N Change item details, as

required

17 Release Purchase Order Purchase

Officer

ME29N Release of Purchase Order as

a document. Once PO has

been released, no changes

shall be permitted in the

document unless release is

cancelled.

53

18 Print/Reprint Purchase Order Purchase

Officer

ME9F Print the PO & send to the vendor.

PO can be printed only if it is in

release status. In case, reprint is

required, fresh message needs to be

generated in the system.

19 Goods Receipts Warehouse

Officer

MIGO Goods receipt would be carried

out by the warehouse person

for the amount of quantity

received. Part 1 entries would

be updated at this point of time

in the RG23 registers.

20 Logistics Invoice Verification Finance

Dept.

MIRO LIV would be done with

reference to the goods receipt

done

Table iii) Activities of procurement process of consumables(Post SAP)

3.4 FUTURE STATE BUSINESS PROCESS(FSBP) FOR

PROCUREMENT PROCESS INVOVLING EIL

54

All Bought Out Items e.g. Major Equipments / Materials (stock & non-stock), Spares,

Process related items etc for Refinery shall be procured in the same way as being

followed today.

Based on the released MR items from the user department, Contract & Procurement

Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.

Technical evaluation shall be done outside SAP and based on the approval for opening

commercial bids of only technically qualified vendors, commercial bids shall be opened

by the authorized persons (consisting EIL & HMEL) and the quotations shall be

maintained in the system for each vendor.

Once the final vendor has been identified LOA (SAP Contract) would be prepared in

SAP and would be released according to the approval strategy agreed upon. A print out

of the LOA would be taken and issued to the vendor. A draft PO would be raised by the

EIL team outside SAP based on which a final PO would be prepared by the HMEL team

in SAP with reference to the LOA. This PO after going through a defined release

procedure would be issued to the vendor.

All tagged and non tagged item purchases would be under Project (WBS Element) as

capital procurement and shall be capitalized progressively. The account assignment

category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be

55

stored as the project stock.No purchase orders shall be made without reference to

quotation or LOA.

Source List providing the details of material and vendor combination shall be

maintained in the SAP system. If there is a single source or a source that is flagged as a

preferred vendor then the system will offer this vendor as the determined source.

However if there are a number of vendors on the source list that are valid by date

selection, then the system will offer the selection to the purchaser. A vendor can then be

selected from the list.

All materials against purchase orders shall be received & posted into the system via an

interface between SAP and WAMS (Warehouse Management System) of EIL. Material

rejection and damage would be handled by the QM module. In case of Tagged

equipment, the GR for the equipment will not be entered till the entire equipment is

received.

The duly authorized hard copy of vendor Invoice shall be forwarded to Finance

department of HMEL and LIV shall be posted in the SAP system by Finance

department. Unplanned delivery costs if any would be posted in a separate line item and

the cost of the same would be captured in a particular G/L account.

Step #

Activity Responsibility / Authorization

Tcode Remarks

56

1 Create LOA Purchase Officer

ME31K SAP Contract would be used as an LOA. The account assignment category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be stored as the project stock. The item category would remain blank or ‘B’ in this case.

2 Change LOA Purchase Officer

ME32K If required changes would be made in the document in case of value change, the document gets dereleased.

3 Display LOA Purchase Officer

ME33K LOA can be displayed.

4 Release LOA IdentifiedRelease Group

ME35KBased on the release strategy identified the LOA is released for sending it over to the vendor.

5 Print / Reprint Purchase Officer

ME9KPrint the LOA & send to the vendor. LOA can be printed only if it is in release status. In case, reprint is required, fresh message needs to be generated in the system.

6 Create Purchase Order Purchase Officer

ME21N Create Purchase Order with reference to the quotation, LOA etc. – Detail purchase order with all relevant details, terms and conditions, pricing elements etc. The account assignment category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be stored as the project stock. The item category would remain blank

57

or ‘B’ in this case.

7 Change Purchase Order Purchase Officer

ME22N Change item details, as required

8 Release Purchase Order Purchase Officer

ME29N Release of Purchase Order as a document. Once PO has been released, no changes shall be permitted in the document unless release is cancelled.

9 Print/Reprint Purchase Order Purchase Officer

ME9F Print the PO & send to the vendor. PO can be printed only if it is in release status. In case, reprint is required, fresh message needs to be generated in the system.

10

11

Goods Receipts

Logistics Invoice Verification

Warehouse Officer

Finance Dept. MIRO

Goods Receipt would be done via the interface between SAP and WAMS of EIL. Part 1 entries of RG 23 register get updated during this process.

LIV would be done with reference to the goods receipt done

Table iv) Activities involved in procurement process of bought-out items(Post SAP)

3.5 BUSINESS PROCESS DESIGN FOR PROCUREMENT

PROCESS FOR OPERATIONAL PHASE OF REFINERY

58

59

60

Fig. xiv) Procurement Process for operational phase of refinery

61

CHAPTER 4:

DATA

COLLECTION

62

4.1 PRIMARY SOURCES

The primary sources of data for this project are

Supervisor’s instructions and explanations.

Business process specifications from HMEL core project team and Business

heads.

Business process listings and specifications by Trusted Advisors of SAP India

hired by HMEL.

4.2 SECONDARY SOURCES

The secondary sources of data are

Business Blueprints of various business processes of Materials Management used

for Phase-I(Constructional phase) of GGSR, Bathinda.

Detailed Powerpoint presentations prepared by Wipro Technologies while

implementing Phase-I SAP implementation of GGSR, as part of their

documentation process.

Detailed flow charts prepared by Wipro Technologies giving the complete

overview of business process flows.

CSBP(Current State Business Process) documents and FSBP(Future State

Business Process) ducuments.

Documentation regarding company’s general terms & conditions.

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4.3 DATA COLLECTION ACTIVITIES AND VARIOUS

DOCUMENTS GENERATED DURING PROCUREMENT PROCESS

Various documents, containing paramount data, are produced during the procurement

process. These are as follows:

1. COPY OF APPROVAL OF APPROVED VENDOR LIST:

EIL&HMEL has maintained the list of approved vendors for procurement of all brought-

out items(Tagged and non-tagged) items i.e., major Equipments / Materials (stock &

non-stock), Spares, Process related items etc for Refinery.

All the vendors interested to be included in Approved Vendor List are required to apply

to the company according to standard company procedures by submitting all the pre –

requisites documents.Company’s inspection team carries out two stage process to

approve a vendor. The stages of vendor approval are as follows:

1. Inspection team scrutinises and evaluates the documents submitted by vendors for

their validity.

2. After documents inspection, Inspection team visit the facility of vendor to evaluate the

vendor’s resources and ability to produce the required items.

64

Vendors clearing above two stages are included in Approved Vendor List.Approved

Vendor List consists of names of trusted vendors. Approved Vendor List contains the

name of both domestic and foreign vendors.

Limited Bidding process is carried out in the organisation. Only the Approved Vendors

are invited to give their bids. No press advertisement is released requesting RFQ.

Fig xv) Approved Vendor List

65

2. COPY OF MATERIAL REQUISITION ISSUED/APPROVED SAP PR:

Material Requisition are raised by the concerned department internally in the

organisation. Business users can initiate the Material Requisition upon their

requirements.

SAP PR contains PR No. which is unique for every PR generated. It contains the details

of goods/services required like Item code, Material code, Description, Quantity,

Estimated value, technical requirements etc.

EIL is responsible for generating the Material Requisition for procurement of Bought-

out items used during the constructional phase of refinery. HMEL departments would

generate Material Requisition for consumables or general office requirements. HMEL

uses approved SAP PR process for generating valid Materials Requisitions.

PR raised by the user contains the appropriate justification of raising the PR. Notes for

vendor is also there which makes vendor aware of company’s general terms & condition

of procurement, consequences of delay of services, etc.

PR contains the authorised signature of Initiator and approving authority. PR also

consists of Terms and Conditions for Delivery.PR also contains the list of recommended

vendors by initiator to help the procurement department in vendor selection process.

66

3. RFQ ISSUED

After the creation of approved Materials Requisition, next step is to generate Request

For Quotation to invite the vendors for bidding process.

Based on the released MR items from the user department, Contract & Procurement

Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.

RFQ contains the unique RFQ No. along with RFQ generation date and Quotation due

date.RFQ gives the details of term and conditions of bidding process by vendors.

Further RFQ contains the details about the item to be procured along with INCOTERMS

and PAYMENT TERMS involved. RFQ also gives the details about the expected

delivery date.

In case of monopoly or few vendors, if the vendor is unable to provide the exact

specification material/service, it can forward its proposal for other alternatives.

Company ,if wants, can negotiate with the vendor

4. ACKNOWLEDGEMENT CUM CONSENT LETTER OF PARTIES

If a vendor is capable of providing all the materials/services and ready to comply with

company’s terms and conditions then it sends an acknowledgement cum consent letter to

the company. Interested vendor responds to the RFQ invitation by giving the letter of

67

acknowledgement. The acknowledgement letter contains the consent of the vendors

interested to do business with the organisation.

If no Acknowledgement letter is received then vendor is considered as Not interested.

Acknowledgement Cum Consent Letter is maintained by the Procurement department of

the company to carry out further activities related to procurement.

5. ADDENDUM(IF ANY)

If the requirement of the material/services changes like additional units of materials are

needed or if there is a change in the specification of materials/services, then all the

concerned vendors are informed about the addendum in order.

Company may provide extension in due date depending upon necessity. Vendors can

work upon the new quotation incorporating the Addendum within the extended due date.

7. UNPRICED/PRICED BID OPENING STATEMENT

Vendors provides their priced and unpriced bids to the company in a sealed envelope in

the required format given by the company. Vendors might go with slight variation in the

prescribed format depending upon the specifications of vendor. Vendor must intimate

the slight variation in prescribed format to the company and get the consent of the

company.

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UNPRICED bids contains the technical details of materials/services needed to be

procured without any details about the price. The unpriced bid contains details about the

actual quantity and quality of materials/services against the proposed one.

Fig. xvi) Unpriced Bid Format

The department which has raised the Material requisition is responsible for analysis of

Unpriced bid to determine whether vendor is satisfying all the requisites of procurement

of proposed material.

PRICED BIDS contains the details of unit price and total price of each item to be

procured. Total price is determined my multiplying unit price by total number of items

to be procured.

69

PRICED BIDS are analysed by Procurement department to evaluate the commercial

feasibility of the order.

Fig. xvii) Priced Bid format

8. COMPLETE SUPPLIER CORRESPONDENCE

All the correspondence happened during the vendor selection process are filed at one

place. Supplier correspondence includes the queries, solutions, recommendations, etc

involved with a supplier.

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9. TECHNICAL REVIEW

The department responsible for raising the requisition prepares the technical review of

the vendor to determine whether they are technically qualified or not. Only technically

qualified users are commercially evaluated by the procurement department.

10.RECOMMENDATION OF AWARD

EIL prepares Recommendation Of Award list for all the selected vendors and forward it

to HMEL. HMEL’s Procurement Department retains a copy of this recommendation of

Award list.

11. APPROVAL NOTES WITH ALL SIGNATURES

Final LOA is prepared and released according to release strategy. All the necessary

documents are maintained properly signed according to DOP.

12. LOA(LETTER OF AWARD) TO THE VENDOR

LOA copy is retained and forwarded to EIL. Final LOA raised by HMEL is the

authorization to a vendor to start making arrangements for supplies.

13.ACCEPTANCE OF LOA

Vendor acknowledged copy of LOA is retained by the company as a proof of acceptance

of LOA.

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14. DETAILED PURCHASE ORDER RAISED

PO contains the complete details about the expected quantity and final prices agreed

upon by both vendor and HMEL during final negotiation sessions. PO is released by

HMEL according to releasing strategy and forwarded to vendor. The copy of final PO is

forwarded to EIL.

A purchase order usually contains: PO number, shipping date, billing address, shipping

address, terms of payment and a list of services/products, often including specifications

and reference or part numbers of the items to be purchased, with quantities and prices.

15.GOOD RECEIVED NOTES/SERVICE ENTRY SLIP.

These documents are generated when material or services are received. The GRN has

information relating to what has been received, how much and when. On completion of

the GRN a copy is sent to payments, with the invoice, for payment.

GRN Contains the following details:

1)Order Number. the number of the PO you are trying to receive items from.

2) Supplier. The name of the supplier who sends the material.

3) Delivery note. If there is a reference on a delivery note / invoice it can be put in here.

5) Material Name and Description: the name and description of the material being

received.

6) Quantity: the quantity of items you have received. This is not necessarily the same as

the amount expected. It is possible to create as many GRNs as you wish as long as the

72

total is the same as on the order. In some situations it may be necessary to create more

than one GRN should you the items on your order arrive at different times.

16. INVOICES

Original invoices are retained and forwarded to finance department for payments. An

invoice or bill is a commercial document issued by a vendor to the company, indicating

the products, quantities, and agreed prices for products or services the vendor has

provided the company. An invoice indicates that company must pay the vendor,

according to the payment terms.

73

CHAPTER 5:

ANALYSIS

74

The business processes are analysed after SAP implementation and following benefits

are observed :

1. Increased Employee Productivity and Reduced Head Counts.

2. Improved Operations Management.

3. Improved Information Organisation and access for Decision Making.

1. INCREASED EMPLOYEE PRODUCTIVITY AND REDUCED HEAD

COUNTS:

HMEL has reported increased employee productivity and reductions in personnel costs

due to the implementation of SAP solution.

SAP’s solution reported significant improvements in reporting accompanied by

increases in the productivity of end users (who could now create their own management

reports) as well as IT personnel (who no longer had to support the end users in the

creation of ad hoc reports).

SAP’s solution for financials and operations management has either reduced the number

of finance personnel or avoided hiring additional staff as a result of improved financial

reporting.

2. IMPROVED OPERATIONS MANAGEMENT

75

There is reported cost reductions resulting from improved financial and operational

management through their use of SAP. In particular, it has been observed that the

visibility these solutions provided into operations along with the automation of various

business processes led to significant reductions in costs and more profitable

management of business operations.

After SAP implementation there is an increase in supply-chain efficiency and reduction

in operational costs.

3. IMPROVED INFORMATION ORGANISATION AND ACCESS FOR

DECISION MAKING

With the standardization of data and the improved access to management information

executives and managers to make better business decisions that were based on sound

business data.

76

CHAPTER 6:

CONCLUSIONS

77

With the implementation of SAP, HMEL has significantly realised benefits through

improved efficiencies in the business processes of procurement which are critical during

project construction. Transparency increased in their business with the implementation

of SAP. Significant benefits are observed due to integration of business processes,

standardised systems, processes and controls and improved efficiencies.

78

CHAPTER 7:

RECOMMENDATIONS

79

7.1 LIMITATION OF SAP IMPLEMENTATION

1. Lack of breadth and repeatability :

2. High personnel costs

3. Excessive customization

1. LACK OF BREADTH AND REPEATABILITY : A positive return on the SAP

investment was achieved only when there was both a sufficient number of users and

sufficient frequency of use (breadth and repeatability) to reap significant productivity

based gains from the solution.

Since HMEL is relatively new company with less number of employees, level of breadth

and repeatability could not be achieved. Some employees are reluctant to use SAP

implementation which further reduces the chances of attaining the breadth and

repeatability.

HIGH PERSONNEL COSTS : The high personnel costs associated with the

implementation of SAP solution was a challenge for a quick achievement of a positive

Return On Investment.

HMEL has deployed around 50-75 full-time internal personnel for implementation

purposes. In addition to the large number of deployment personnel needed to implement

SAP, the personnel time spent on training was significant in some cases.

80

EXCESSIVE CUSTOMIZATION : HMEL found that the consulting costs associated

with customizing SAP were very high. Excessive customization involved the

development of too many individual interfaces between HMEL and EIL.

RECOMMENDATIONS

1. Develop a clear road map for the full exploitation of functionality to a wide breadth

of users and departments within a reasonable period of time.

2. Conduct a thorough review of reference users in similar industries to evaluate whether

the promised benefits really apply to the industry and the user base in question.

3. Avoid excessive customization of the solution and its interfaces,focusing instead on

deploying a usable system that will deliver returns within a measurable time frame.

4. Conduct a pre-deployment Return On Investment analysis that evaluates expected

returns and costs, taking into account the probability of achieving those returns and the

payback period for the investment.

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BIBLIOGRAPHY

WEBSITES:

1. http://www.hmel.in

2. http://www.wikipedia. org

BOOKS:

1. Roberta S. Russell, Bernard W.Taylor, Operations Management, 4th edition, Person Education.

2. Nair, N.G Production and Operations management, Tata McGraw Hill Publishing Hours, new Delhi.

3.MM Verma (Materials Management), Sultan Chand & Sons.

4. Equity Press, SAP Cook Book Material Management, Equity Press

5. Martin Muray, SAP - MM - Functionality and Technical Configuration.

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