Stores & Purchase Sop

T

MANAGEMENT SERVICES DIVISIONADITYA BIRLA MANAGEMENT CORPORATION LIMITED Industry House, 17th Floor, 10 Camac Street, Kolkata 700 017 Phone 91-033-2282 5603/04, E-mail [email protected]

MANAGEMENT SERVICES DIVISION MANAGEMENT SERVICES DIVISION

VISIONTO BECOME A WORLD CLASS MATERIAL MANAGEMENT FUNCTION AND THE MOST EFFICIENT MEMBER IN THE SUPPLY CHAIN

MISSIONTO PROVIDE GOODS & SERVICES, ONTIME, AT BEST VALUE TO OUR INTERNAL CUSTOMER

GROUP VALUESThe Purchase and Stores manual has been developed on the foundation of following group values INTEGRITY Integrity is honesty in every action. The Material Management team should act and take decisions in a manner that are fair, honest and follows the highest standards of professionalism. Integrity should be the cornerstone for all the deals, be it with customers, employees, suppliers, partners, shareholders, the communities or the COMMITMENT government.

Commitment is Doing whatever it takes to deliver as promised. Each one of the material management team should take ownership for their work, teams and the part of the organization they are responsible for. Through this value they shall build an even sharper results oriented culture that is high on reliability and accountability. PASSION Their commitment is likely to make them a formidable leader and competitor in every market that they areis a missionary zeal arising out of an emotional engagement with work, which inspires each one to Passion in. give his or her best. All of the material management team are expected to be energetic and enthusiastic inthe pursuit of their goals and objectives. Material Management team should recruit and actively encourage employees with a Fire in the belly. With this Value, they would build a culture of innovation and breakthrough thinking leading to superior customer satisfaction and Value creation. SEAMLESSNESS Seamlessness is understood as thinking and working together across functional silos, hierarchy levels, across business lines and geographies. Each one of the material management team shall demonstrate high level of teamwork through sharing and collaborative efforts and garner the synergy benefits from working together. Before the material managers can truly benefit from a borderless world, they need to build a borderless organization. They should visualize free flow of knowledge and information across the Group. SPEED Speed is looked upon as responding to internal and external customers with a sense of urgency. They should continuously seek to crash timelines and ensure expeditious completion of their tasks. Through this Value they would build an agile and proactive organization that is prompt to respond to the present and future needs of their customers. l Integrity l Commitment l Passion l Seamlessness l Speed

ACKNOWLEDGEMENTSWe would like to put on record our deep appreciation for the valuable inputs received during the course of preparation of this comprehensive manual from the following group units:

l Hindalco Renukoot l Birla Copper l Indo Gulf l Ultra Tech Cement l SFD Nagda l Hi Tech Chennai l Birla White l IRIL Veraval l Grasim Chemical Nagda l Indal Belgaum l Birla Cellulosic

We would also like to make special mention of the support received from the following group executives whose contribution was very significant for developing and finalizing this SOP :l Mr. Om Prakash, Hindalco l Mr. Arun Jani and Mr. Gitesh Shah, Birla Copper l Mr. Ajay Singh, Indo Gulf l Mr. Prashant Davangeri, Ultra Tech l Mr. Dinesh Kalantri and Mr. Raghunath Panigrahi, SFD Nagda l Mr. Manoj Kedia and Mr. Shireesh Jain, IRIL CFD

EXPLANATORY NOTE ON THIS SOP

This standard operating procedure has been prepared by putting together the Best practices within and out side our group units. The aim is to standardise system and processes relating to materials management at group units. Key features of the SOP are:l The SOP provides the as on date best practices in the group and all units should endeavour to achieve

the cur rent benchmark best practice.

l The SOP has been prepared keeping in mind that units in the group are of varied sizes. The SOP

provides for unit level f lexibility while at the same time calls for uniformity of basic processes and controls.l While choice of the level for delegation authority is left flexible, the SOP mentions the overall delegation

structure for efficient working as well as adequate controls. The SOP has also listed the activities for which delegation authority must be fixed in the individual units delegation manual.l Our group units are currently at different levels of IT enablement with regards to materials management,

this SOP has been based on best systems in the group and hence units may plan a phased upgradation of materials management IT systems/software which would be beneficial to the unit in the long r un. The SOP mentions suggested target dates for IT enablement of key operations within materials management.

l In the SOP, formats for various Forms and MIS re ports are given. While it would be ideal for all group

units to have a standardised format for the above it is however important that all features of the forms and MIS reports are included in the units existing Forms and MIS reports.l The SOP has provided lead times for internal operations of the Stores and Purchase functions which

are in line with group best practice. Units should endeavour to achieve or better these lead times.l The SOP provides the suggested best process flow of materials and documents relating to materials

management and units should target to have material and document flow in line with SOP recommendations.

l The SOP has also provided frequency of MIS generation and other activities such as physical verification,

review of inventory classification etc, units should keep frequency of such reports & activities in line with SOP recommendations.

MAIN INDEXSECTION - A1. Procedure....................................................................................................................... 3 2. Schedule of Authority...................................................................................................... 6 3. Purchases....................................................................................................................... 7 4. Accounts........................................................................................................................ 31 5. IT System Administration................................................................................................ 33 6. Vendor Performance Assessment.................................................................................... 35 7. E-Auctions..................................................................................................................... 49 8. MIS............................................................................................................................... 51

SECTION - B1. Indenting........................................................................................................................ 59 2. Stores............................................................................................................................ 63 3. Item Codification............................................................................................................ 99 4. MIS............................................................................................................................... 102

SECTION - C1. Annexure A....................................................................................................................112 2. Annexure B....................................................................................................................114

SECTION - A

MANAGEMENT SERVICES DIVISION JULY, 2005

CONTENTS

TABLE OF CONTENTS1. Procedure .................................................................................................................................. 3 2. Schedule of Authority ................................................................................................................ 6 3. Purchases .................................................................................................................................. 7 3.1 Identification and Registration of a Vendor ................................................................................... 9 3.2 Supplier Evaluation Report .......................................................................................................... 10 3.2.1 Parameters suggested to be considered for Final registration of the new vendor ..................... 14 3.3 Enquiries .................................................................................................................................... 15 3.4 Quotations .................................................................................................................................. 17 3.5 Raising of POs/ WOs ................................................................................................................. 19 3.6 Lead Time Fixation ..................................................................................................................... 22 3.7 Urgent / Verbal or Cash Procurement .......................................................................................... 22 3.8 Purchase Committee ................................................................................................................... 22 3.9 Annual Rate Contracts ................................................................................................................ 22

3.10 Item Register ............................................................................................................................. 24 3.11 PO Amendments and Cancellations ............................................................................................. 24 3.12 Pending Indent ........................................................................................................................... 25 3.13 Pending POs .............................................................................................................................. 25 3.14 Follow up activities ..................................................................................................................... 26 3.15 Measurement of Internal Performance Efficiency ......................................................................... 26 3.16 Job Work ................................................................................................................................... 28 3.17 Review Meetings ........................................................................................................................ 30

4. Accounts .................................................................................................................................... 31 5. IT System Administration ......................................................................................................... 33 5.1 Conversion table for unit of measurement ...................................................................................... 34 6. Vendor Performance ASSESSMENT and Appraisal For existing vendors ........................... 35 6.1 Vendor Appraisal .......................................................................................................................... 35 6.2 Criteria for vendor appraisal .......................................................................................................... 35 6.2.1 Vendor rating based on delivery parameters ......................................................................... 35 6.2.2 Vendor Rating Based upon Material Quality ......................................................................... 38 6.2.3 Vendor rating based on service parameters .......................................................................... 39 6.2.4 Overall Vendor Rating......................................................................................................... 40 6.2.5 Vendor Grade ....................................................................................................................40

6.3 Vendor assessment for Contractors and Service providers ............................................................... 42 6.4 Delisting of vendors ...................................................................................................................... 43SOP-Purchase and Stores 1

CONTENTS6.5 Vendor Assessment ...................................................................................................................... 43 6.6 Vendor Satisfaction Survey ............................................................................................................ 46 6.7 Vendor Awards ............................................................................................................................. 47 6.7.1 Suggested criteria for vendor awards are ............................................................................. 47 6.8 Vendor Relationship ...................................................................................................................... 48 6.9 Blacklisting of vendors .................................................................................................................. 48 7 . E-Auctions ................................................................................................................................. 49 7.1 Suggested Standard Terms and Conditions ...................................................................................... 49 7.1.1 Asset Disposal ................................................................................................................... 50 7.1.2 Process scrap, obsolete & surplus ....................................................................................... 50 8 . MIS ............................................................................................................................................ 51 8.1 Daily/Weekly reports .................................................................................................................... 51 8.1.1 Pending Indent status ..........................................................................................................51 8.2 Monthly Reports ........................................................................................................................... 51 8.2.1 Overdue Purchase Orders .................................................................................................. 51 8.2.2 Cenvat status ..................................................................................................................... 51 8.2.3 Response time/ Lead time ................................................................................................... 51 8.2.4 Report on process efficiency of material management .......................................................... 52 8.2.5 Discrepancies/ shortage/ damage report .............................................................................. 52 8.2.6 Acceptance and Rejection Summary ................................................................................... 52 8.2.7 Losses ............................................................................................................................... 52 8.2.8 Outstanding Advances ........................................................................................................ 52 8.2.9 Outstanding Payments ........................................................................................................ 53 8.2.10 Internal Customer Satisfaction Survey ................................................................................. 53

8.3 Quarterly Reports ......................................................................................................................... 53 8.3.1 Internal performance efficiency measurement report ............................................................ 53 8.4 Bi Annual Reports ........................................................................................................................ 53 8.4.1 Vendor Satisfaction survey report ........................................................................................ 53 8.4.2 Vendor Performance report ................................................................................................ 53 8.4.3 Report of percentage of A rated vendors ............................................................................. 53 8.5 Annual ......................................................................................................................................... 53 8.5.1 Annual Rate Contracts ....................................................................................................... 53 8.5.2 Vendor and Industry development ........................................................................................ 54 8.5.3 Cost Reduction and Containment ......................................................................................... 54 8.6 MIS proforma formats .................................................................................................................. 542

Management Services Division

PURCHASE MATERIAL MANAGEMENT1. PROCEDURE

The Materials Management process should be a fully integrated IT processed system. ACTIVITY CHARTGet the material Inspected Sends intimation for material inspection Material Material Purchase Request / Indent Overdue PO Status Allocated Budge ts Payment planning Financial concurrence Purchase Department Material Management System (Creates vendor database in the system) Stores Dept. Store the approved material at specified location

Material Issue voucher User Dept

GRN & other documents Materials & Invoice submission Enquiry Quotations Vendors Selects and places PO Order Acceptance

Finance/ Accounts

Payment to vendors GRN

Figure 1: Procurement activity chart showing Material Management integrated workflow

The above figure portrays the fully integrated material management process. The Inventory integration with the User department and the Purchase department is designed to address stock replenishment needs.l Finance/Accounts department provides item/group wise allocated budget to the purchase department at

the beginning of the year.

SOP-Purchase and Stores

3

PURCHASEl Information about stock items is available to the user departments. l A requisition for stock passes from user department to stores. Requisition for purchases/indent is passed

from user department to purchase department.l Vendor database is created in the system by the Purchase department.

l Enquiry is floated by the Purchase department to Vendors. l Vendors, based on the specification of required raw material, submit their quotations to the Purchase

department.l The Vendor is evaluated and selected by the Purchase department and P.O is placed with the vendor.

l Vendor confirms the order. l Vendor delivers the material along with the invoice to the Stores department. l The material specified to be tested at the laboratory is sent for lab analysis and other items are inspected

by the User department.l After approval, the inspected material is put to safe custody at the specified place for storage.

l When the goods are approved, goods receipts are entered and referenced to a purchase order number,

ensuring accurate posting of deliveries to each purchase order line. Auto work flow alert is generated in the Purchase and Accounts department after creation of goods receipt note for bill passing.l Stores department sends the invoice to the Accounts department along with all the required documents. l Both the Purchase and the Stores department share the information on items, requisitions, purchase

orders, and goods receipt note.l Stock moves from Stores to User department.

4


PURCHASEl Purchase department gives the payment planning for the month to the Accounts department. l Accounts department gives financial concurrence to the Purchase department. l Purchase department informs user department on status of overdue PO.

l The Accounts department shares purchase order information from Purchasing and updates the invoiced-

to-date amount on the purchase order real-time.l Finally payment is made by the Accounts department as per the terms of payment to the vendors.


5

PURCHASE 2. SCHEDULE OF AUTHORITY Standardisation of delegation authority is necessary for institutionalisation of systems. Every unit should have only three levels of defined delegation authority The Initiator, The Recommender and The Approver. This will allow both adequate control and speed of execution. A delegation authority level should be made separately for Raw Material, Stores & Spares and Capex items. In our highly diversified group, which has large, medium and small size units, the units should set their our guidelines for approvals, authority levels and responsibilities for indenting, purchase and stores function according to the functionality and units size, however adhering to the three level delegation authority.Delegation Authority

Level 3

Approver

Level 2

Recommender

Level 1

Initiator

Raw Material

Stores and Spares

Capex items

Figure 2 : Levels of Delegation Authority

Units Material Management Delegation Manual should specify the levels and limit of delegation authority for at least the following activities:l Indent Approval l Indent cancellation

6


PURCHASEl Indent for items in excess of the warranted limit. l New vendor approval l Special approval for doing business with vendors related to any employee or director of the

Aditya Birla group companies.l Amendment of vendor master l PO approval l Emergency, verbal or cash purchases l Amendment and/or cancellations of POs l Exceptional extension of bid opening dates and extension of job completion date. l Price increase for job contracts. l Advance to vendors l Hold payment authorisation l Delisting of vendors l Blacklisting of vendors l Adjustments required to be made in the books for significant discrepancies identified as a result of

physical verification of inventory.

3. PURCHASES The Purchasing department helps manage the entire procurement cycle. This cycle includes requesting, competitive bidding, buying, vendor development and appraisal. Purchase departments day-to-day decisionmaking should be fully supported with tools and information availability on-line to manage the supplier base and service the purchasing function in a timely and efficient manner.SOP-Purchase and Stores 7

PURCHASEThe following figure shows the activities performed by the Purchase department:User Dept. Purchase department Raises Indent Vendors Stores department Receive & verify Indent

Return to Indentor

No Contracts - New & Renewal Yes

Indent Ok or not

Indent for auto in dented items Regular contract item No Float enquiry Receive offers & prepare comparatives Receive Enquiry & send Quotation Yes Inform Qty to suppliers Sends Material

Technical approval by indentor if any

Negotiation & Finalisation of PO/contract Receive confirmation, obtain internal approvals & send PO to suppliers Follow up for timely delivery Inform and return to su pp lier Arrange replacement from supplier

Receive offer & sends confirmation

Receive PO Receive materials and arrange for inspection No Ye s Prepare GRN and approve for Bill Passing Items accepted or not ?

Sends Material

Figure 3: Work flow in Purchase department

Head (Purchase) should be responsible for overall purchase activities.8 Management Services Division

PURCHASE 3.1 Identification and Registration of a Vendor New Vendor Selection processes should be developed on the basis of individual units need. The need could be:l New Item l Emergence of New Technology for manufacturing process and Material of Construction l Generate competition l Compress Lead Time

New vendors can be identified by any of the following ways: Introduction letters by vendors, vendor visit, reference by group units, references by others, User department, internet/ providing a standard web site for the vendors to indicate their credentials and areas / commodities / services offered by them, yellow pages, trial and error, putting advertising in The following figure shows the process of new vendor selection by the purchase department: the media and through Industrial finder.Purchase DepartmentSet vendor selection parameters

Vendors

Identify new vendors

Prepare request for quotes

Solicit quotes from vendors Provide quotes

Prepare comparative bids Obtain Technical recommendations Select technically acceptable and low bid vendors

Generate P.O. & place trial orders

Receive orders and send s amples

Figure 4: New vendor selection process SOP-Purchase and Stores 9

PURCHASE 3.2 Supplier Evaluation Reportl New vendors must fill the Vendor Evaluation Report. l New vendors should be evaluated by the Technical department, if required. l New vendors should be recommended & approved as per the units delegation manual. l Special approval as per the units delegation manual should be taken for doing business with

l There should be two sets of vendor records, one of empanelled Vendors and the other of

vendors related to any employee or director of the Aditya Birla group of companies. The declaration from the vendors for the same should be taken in the vendor evaluation report. In such cases IT System should generate system alert, so that timely formalities can be performed. Registered Vendors.

q Empanelled Vendors- Will be all those Vendors who have indicated their willingness to

enter into business with the unit.q Registered Vendors: Will be those Vendors who are finally selected and would be eligible

l New vendors should be allotted provisional vendor code with status marked as temporary.

to get inquires according to NORMs set. Registered Vendors would get enquiries through an automated system. Any exclusion or inclusion (for any reason what so ever, should be by explicit approval of departmental head specifying the reason).

10


PURCHASEUnits form should contain the following information as shown in the suggested Vendor Evaluation Report form:

SUPPLIER EVALUATION REPORT1 Name of the Supplier : 2 Address : a. Factory / Ware House : b. Office : c. Email address : d. Bankers address :

3 Fax / Telex No. : 4 Telephone ( s ) : a. Factory / Ware House b. Office 5 Nature of Business: Manufacturer / Sole Selling Agent / Dealer / Trader / Agent / Assembler 6 Nature of the Company : Proprietor / Partnership / Private / Public Ltd . a. In case of Proprietory / Partnership Co : i) Proprietor/Partners Name : ii) Address : iii) Telephone No. : b. In case of Private / Public Ltd. Co. : i) Chief Executives Name : ii) Address : iii) Telephone No. : 7 For clarifications persons to be contacted : Name Designation Address Phone No.

8 Brief Details of Product / Classes , Types of Equipment , Supplies and Material which can be supplied by you. 9 Are any regulatory requirements applicable to your product / process with respect to : a ) Environment (Yes / No) b ) Safety (Yes / No)

Contd...SOP-Purchase and Stores 11

PURCHASE10 If yes , enclose evidence of compliance : 11 Are you complying with requirement of SA 8000? 12 Are you registered under ISO 9000? 13 If no, do you have documented quality system : (Yes/No) 14 Do you have a quality manual : (Yes/No) 15 List of five main clients : Name of Organisation Address & Contact Person Products Value of supplies Phone No. with designation supplied in last 2 years Annexure No.

16 Annual Turnover ( Value ) ( Last Three years ) 17 Do you have any Local Branch / Office / Agents ? If so, please furnish details with address, Phone no. and contact person. (Applicable only to outstation sub-contractors). 18 If you are an Authorised Dealer / Representative, please furnish documentary evidence . 19 Name and address of your Bankers . 20 Please enclose Balance Sheet of last 3 years 21 Value of total Capital Employed . 22 Value of orders in hand . 23 Income Tax Registration number: 24 With holding Tax / Sales Tax registration number ( Applicable for Local Dealers ) 25 Central Sales Tax registration number 26 PF No. (For contractors) 27 SSI registration number 28 TIN Number 29 Excise registration number 30 Excise duty applicable in % 31 VAT registration number 32 Applicable VAT rate (%) 33 Are your products covered by warranty, if so, state period & scope of warranty . 34 List of customers from Aditya Birla group 35 Relationship with AVB Groups Employee/ Director (if any) 36 List of enclosures.

( For Companys use ) Recommendations : Decision on Registration :Date

Head (Purchase ) or Head (Commercial )

Contd...12 Management Services Division

PURCHASEAPPLICABLE TO MANUFACTURER SUPPLIER1 Duration for which factory is in production. 2 Total production capacity per annum for items required by Company 3 Capacity available for the Company 4 Total number of employees on date i) Production ii) Quality Control 5 Details of Machinery in operation : 6 Raw Materials specifications and their sources : Product Specifications Source

7 Please furnish details available for testing and inspection facilities. 8 Brief details of production process and quality control . 9 Has your product been tested by any independent agency / reputed Test House. (Yes/No) If so, indicate details . 10 Do you inspect both the materials bought and materials inprocess, give details. 11 How do you inspect/ verify finished products ? Give details on inspecting and testing set up, if any . 12 How are the non conforming products identified , documented & disposed off ? 13 What Statistical Tools are employed in the company for product control and process capability . 14 Types of packaging and marking on the product . 15 Procedure for dealing with the customer complaints and responsibility for dealing with the same ? 16 Future Plan a) Expansion Programme. b) Additional Test Facilities c) Installation of New Machinery 17 Any additional information you would like to furnish . Figure 5 : Suggested Standard Supplier Evaluation Report SOP-Purchase and Stores 13

PURCHASE 3.2.1 Parameters suggested to be considered for Final registration of the new vendor :l Quality l Price l Savings potential (to be evaluated for Long Term) l Competence to supply and Financial Strength l Market Reputation - IT clearance for last 2 yrs and Compliance with central/ state

rules & regulationl Delivery l After Sales service l Stability

Units should consider the above parameters and assign individual weights for final supplier registration based on criticality of equipment.l After 1 trial order, the above parameters should be reviewed and evaluated and if found suitable,

l Registration form should be filled in for all new vendors.

the Vendor should be included in the approved vendor list with temporary vendor code. The same should be re assessed after six months of performance and if satisfied the vendor code should be finalised.

l Unit should not conduct business with the unapproved and/or unlisted vendors. l Vendor master should be reviewed on an annual basis. It can be amended only by the authority as

per the units delegation manual.l Expiry dates of the ISO certificates of the vendors should be monitored on a bi annual basis.

14


PURCHASE 3.3 Enquiriesl Based on the indents received, enquiry for quotations should be floated within 2 working days to

all the registered suppliers detailing the specifications, quantity, delivery and other commercial terms.l Proper item wise vendor link should exist for each group and sub group of items supplied by the

same vendor to avoid duplicate entry of vendor details against each item separately.l Enquiry for an item should be floated to all the vendors listed in the vendor directory for a particular

item.l As per requirement, Email, Telephone, Postage, Fax, Internet can be used for floating/ communicating

enquiries to vendors. There should be a yellow page linkage for items and the registered vendor list for that item so that enquiry automatically goes to the respective vendors via email. Sending enquiries by faxes / post will be required for those vendors who do not have email facility.l An enquiry can contain one of many materials of a material group (for example 1.5", 1" bolts etc.

which have separate material codes, should be part of a single enquiry).l Every enquiry should have only one last date of receipt of quotation from vendors.


15

PURCHASEUnits format should contain the following information as shown in the suggested format for sending enquiries to vendors:

ENQUIRY FOR PURCHASEM/s. Fax No. : Tel No. : Attn . : You are requested to send your best offer for the item(s) listed below.: Enquiry No.: Enquiry Date: Bid closing date: Contact Person : Email:

Sl. No. Item Description UOM Qty Delivery Packaging Rate Type (ex works/ Freight (if Value Code schedule FOR) applicable)

TERMS & CONDITIONS Quotation must reach us within a stipulated due date addressed to the Contact person. Quotations received after due date are liable to be rejected. Please indicate in your quotation source of shipment: Your own works / Your sub vendor. Please indicate the taxes and duties explicitly in your offer. Quotation inclusive of taxes without its breakup are liable to be rejected. Please indicate the make offered against each item. Please indicate your best prices and delivery terms clearly in your Quotation. Please mention transportation charges if Ex works rate is quoted. Contact person mentioned above may please be communicated with in case of any clarification.

PLEASE INDICATE EXCISE DUTY RATE WITH CHAPTER HEADING/SUB HEADING AND YOUR EXCISE REGISTRATION NO., EXCISE RANGE & DIVISION. WE MAY NOT ENTERTAIN YOUR QUOTATION WITHOUT CHAPTER HEADING IN CASE OF EXCISABLE ITEM. Please mention your VAT registration number and the applicable VAT %. ForAuthorised Signatory Note : 1. Please fill in our ENQUIRY FOR PURCHASE and fax/mail it back. 2. Please quote our Enquiry number in all your future correspondences for faster response. 3. Computer generated statement, hence not signed. Figure 6: Enquiry format 16 Management Services Division

PURCHASE 3.4 Quotationsl Quotations should be received by email within the required by date mentioned in the enquiry

form. Where the vendors do not have email facilities the same can be received through Post / Fax. Auto acknowledgement of receipt of quotation can be sent through email wherever possible. l Vendor wise comparatives should be prepared for each item. The comparatives should highlight the initial offer and the final negotiated rate.l Quotations should be recorded in the IT system.

Units quotation format should contain the following information as shown below in the suggested format:Indent No. XXXXXXXX PRICE COMPARATIVE CHART Dept Code: Technically acceptableSr. Item Qty Unit A B Lowest Existing D E No. Description Quoted Negotiated Quoted Negotiated Value Quoted Quoted Rate Value

UNIT:

Date:

Tech. not acceptable

Rate Value Rate Value Rate Value Rate Value Rate Value Rate Value Rate

X Y TOTAL PRICE Packing and Forwarding Sub Total Excise Duty VAT/ Sales Tax/CST TOTAL Cenvat Freight Charges LANDED COST PAYMENT TERMS DELIVERY GUARANTEE REMARK, IF ANY

Figure 7: Comparative statement of quotations received from indigenous vendors SOP-Purchase and Stores 17

PURCHASEMaterial Supplies-Foreign & Indigenous Sources: Indent No. : XXXXXXX Dept.code: Sr. Item No. Description Qty Unit

UNIT: PRICE COMPARATIVE CHART

Date:

Technically Acceptable A (India - CUR. = INR) B (USA - CUR. = US$) Quoted Negotiated Quoted Negotiated Rate Value Rate Value Rate Value Rate Value

ITEM Sub Total Discount Price Ex-Works P & F Charges Price FOB Sea Freight Charqes (approx.) C& F Price Insurance SUB-TOTAL Exchange rate Landing charges/ Packing Charges Assesable value (Rs) CD CVD / ED Cess on CVD / ED TOTAL Cess / Sales Tax/VAT/CST Less : Landing Charges Less: Cenvat TOTAL Clearing charges * Inland freight LANDED COST (In Rs.) Delivery period Payment term Offered Rate Validity Delivery Terms *Clearing charges: Assesable value (Rs.) Clearing charges Service Tax Custom examination expenses Labour charges N-form charges Preparation and B/E passing Stamp duty charges Total clearing charges Figure 8: Comparative statement of quotations received from indigenous and foreign suppliers 18 Management Services Division

PURCHASEl There should be two stages of Bid Sheet, one with detail as provided above and another in summary

form giving only the landed values to facilitate decision making. (if required by the unit.)l All calculations must be system supported. l Bids to be approved on online system with provision for text entry to record special considerations

for decision making, if any.l Quotations should be sent to the Technical department for their evaluation and any remarks if

required.l Vendors should be selected on the basis of documented norms for selection as mentioned above

within 5 working days of offer closure date. 3.5 Raising of POs/ WOsl PO approval as per delegation manual should be done through IT system. l All purchases should be separately categorised as Indigenous and Imported purchases. l All POs should specify Rate, Qty, Value, Taxes and duties, Item description, Terms and conditions,

Delivery Schedule, Late delivery, Standard/specifications (where necessary), Packaging requirements, Marking/labelling (where applicable), Sampling and inspection requirements (if any)and Discounts. In case of imports the PO should additionally specify Shipping documents, Insurance, Freight and Guarantee/Warranty.


19

PURCHASEUnits format should contain the following information as shown below in the suggested format of Purchase Order: PROFORMA PURCHASE ORDER Works : Company Name : Phone : ( Regd. Office : ) Dist. :

M/s. Indent No.: Purchase Order No.: Excise VAT /S. T. FORMIndent Authorisation date: Purchase Date : VAT l Required l Will Follow

Vendor Code: Terms of Payments: Discount : C.S.T. : l Attached Ref.: Delivery Point : L/R : State Tax Sl. No. Mode of Despatch : Date

Please arrange to supply the following against this order in accordance with the terms & conditions stated below: Sl. Item Material Order UOM Required Delivery Schedule Unit Required Value No. Code Description Qty Qty Price payment Delivery date Month Year date

VAT @ % Total Rs. Department Code : Central Sales Tax Regn. No.Dated Excise Regn. no. (Indent Initiator) Recommeder Approver State Sales Tax Regn. No. /VAT No. For (companys name) Figure 9: Purchase Order

l Individual units will have their own purchasing terms and conditions. Variations in individual

units might be due to nature of items. The following shows suggested standard clauses that should be included in a Purchase Order:q Documentation It should mention all the documents that need to be sent along with the challans

and invoices.q Delivery It should mention where the goods need to be delivered. q Payment terms It should mention the standard payment terms. q Price basis It should mention whether the price is Ex works or FOR basis or any other. q Mode of despatch It should mention the designated transporter. q Freight It should mention as to who will bear the freight. q Insurance It should mention on whose account insurance cover would be charged.20 Management Services Division

PURCHASEq Octroi It should mention whether the same would be applicable or not and to whos account. q Excise It should specify the applicable rate and amount of Excise Duty. q Sales Tax It should mention the applicable rate of CST and/or State Sales Tax . q VAT It should mention the applicable VAT rate. q Packing and Forwarding It should mention whether the rate includes the packing and forwarding

charges. Otherwise the same should also be separately mentioned.q Delivery Schedule and commitment It should mention the required delivery schedule of the

material.q Risk Purchase clause - In case of failure to meet the commitment whether additional charges for

getting material by any other supplier/alternate arrangement would be deducted from the original supplier concerned.q Inspection It should mention whether pre dispatch inspection is required to be done at suppliers

end or not. It should also mention whether the final inspection at the units factory will be binding or not.q Rejection It should clearly mention who will bear the cost and risk of to and fro transportation

in case of rejections and the days within which the same should be lifted from the factory stores.q Penalty clause - It should contain a penalty clause for late supply/ short supply/ excess supply/

improper packaging/ bad quality delivery etc.q Termination On what conditions will the company have the right to terminate the order and

whether the company would undertake any liability for such cancellation as a compensation, damage or otherwise.l In cases of staggered delivery, the staggered delivery schedule should be mentioned in the PO copy if

l As soon as the Indent no. is keyed in the IT system, all the details from the purchase requisition

the schedule is known with certainty at the time of issue of PO. Else if the requirements are flexible, the required by date should be mentioned against the PO reference column as and when the requirements are placed with the vendors. should automatically be captured from the IT system, i.e. Item code, Description, Order Quantity, Required quantity and Delivery schedule.


21

PURCHASEl The order should be communicated to the vendor by any of the following modes - Wide Area

Network/Fax/Postage/Courier/E-maill The order should be placed within 2 days of vendor selection/ bid approval.

3.6 Lead Time Fixationl Purchase department should fix standard lead time of procurement for all items. The lead time

should be available to user department online for them to effectively plan their material requirements. 3.7 Urgent / Verbal or Cash Procurementl Emergency or verbal, purchases should be done in a restricted manner with or without cenvat

benefits.l It should be approved by the approving authority as per the units delegation manual. The authorised

value limit of purchases should be specified in the units delegation manual.l POs for emergency purchases should be properly documented in the following course of action. l There should be defined category of items for cash purchases such as printing, stationery etc. Limits

of cash purchases should be fixed for such items.l PO for cash purchases need not be made.

3.8 Purchase Committeel A purchase committee should be formed comprising of personnel from Purchase department, Finance

department and Technical department. This committee will take decisions for high value purchases.l Individual units should decide on the value limits for referral of high value purchases to

purchase committee. 3.9 Annual Rate Contractsl Items which are ordered atleast once in a month (regular in nature) should be covered under annual

rate contract.l The suggested general clauses which should be included in all the rate contract clauses are as

follows:q Rate It should specify the contractual rate or the reference document.22 Management Services Division

PURCHASEq Make It should specify the Brand if any. q Discount It should specify discount (in percentage/absolute amount/linked to Price List) q Excise Duty It should mention as applicable and to provide proper documents to claim

CENVATq CST It should mention whether it is nil against C form/production of necessary documents

and specify the amount of order to be procured through dealers.q Entry Tax/Octroi It should specify to whose account Entry Tax/Octroi would be charged. q VA T It should specify whether VAT is applicable or not and the applicable percentage. q P&F - It should specify to whose account P & F would be charged. q Price Basis It should specify the price basis (FOR/Ex works). q Price Change It should specify in case of price change, when would the revision be applicable. q Payment terms- It should specify the credit period. q Insurance - It should specify to whose account Insurance would be charged. q Delivery - It should specify the delivery period or terms of delivery. q Mode of transportation It should specify the mode of transportation and on whose account

would transportation be charged.q Packing requirements It should specify the type of packing required. q LD clauses It should specify the amount of charges to be deducted for late delivery. q Inventory It should specify that the parties should maintain inventory of regular items in their

godown/ premises all the time.q Penalty It should specify on what infringement would this clause be applicable and the amount

to be charged for the same.q Risk Purchase clause In case of failure of party to supply at required time, whether the

buyer has the right to debit suppliers account for additional charges incurred by the former for procuring the material from some other sources of supply.SOP-Purchase and Stores 23

PURCHASEq Material Acceptance It should specify terms and conditions in case of rejections. q Quantity variation It should state the terms of conditions if there is variation in the receipt

quantity.q Warranty & Guarantee It should mention warranty and guarantee of the quality of the

material supplied for.q Test Certificate Whether test certificate is required to be submitted along with each supply

or not.q Test witness charges Whether any third party inspection is required and the charge applicable

for the same.q Documentation Mode of providing the documentation. q Validity It should specify the period for which the contract would be applicable. q Termination It should specify the point of termination and what would be the right of termination

by the parties involved before expiry. 3.10 Item Register Purchase department should prepare and maintain an Item Register in the IT system.The following figure shows a standard format of Item Register. Sl. Vendor Vendor Group Code Item Code Item description UOM Shelf life No. Code Name

(if any)

Figure 10: Proforma of Standard Item Register

The item register should be updated every year incase any addition or deletion in the list is made. 3.11 PO Amendments and Cancellationsl Amendment and/or Cancellations of POs should be authorised by the authorised persons as

per the units delegation manual.l PO should not be amended for reducing the quantity below the quantity received material.

PO should not be amended after full receipt of material.24 Management Services Division

PURCHASE 3.12 Pending Indentl Purchase department should run an online pending indent status report on a daily basis to

place orders in time. Weekly report of urgent/ emergency indents and monthly consolidated report of normal indents should be generated for tracking performance efficiency. It is suggested that weekly review should be done at the operating level at the user department and the monthly reviews to be done at the Functional level. The following figure shows suggested report on pending indents generated by the IT system:Department Indent Auth Dt. Item Item Ordered Req. Req. UOM Estimated Remarks Code No. of Indent Code Description Qty. Qty. Date Value

Figure 11: Pending Indent report

3.13 Pending POsIT System should generate monthly reports on POs pending for deliveries segregated with its ageing as suggested below: Item wise Age summary - Yet to be Due PO From To Items Value (Rs./L) 0 15 Days Buyer Code - 0 15 Days 16 30 Days 31 60 Days Name : 61 90 Days 91 120 Days 121 150 Days 151 180 Days 181 365 Days 366 730 Days > 730 Days List of Pending Purchase Orders as from date : / / To : / / Item wise Age summary - Over Due PO From To Items Value (Rs./L) 16 30 Days 31 60 Days 61 90 Days 91 120 Days 121 150 Days 151 180 Days 181 365 Days 366 730 Days > 730 Days Date:UOM Reqd. by Delay P.O. Remarks

Dept. Indent Indent Item Item P.O. P.O. Vendor Vendor Qty. Code N o. Date Code Desc. No. Date Code Name Order Recd. Pending Date Days * Value

* Note: Delay days should be automatically calculated by IT system through formula i.e. (System Date - Reqd. by date) Figure 12: Report on Pending POs


25

PURCHASEl Purchase department should give online feedback to user department about status of Overdue

PO.l Timely deliveries should be monitored by generating reports on delivery overdue enlisting the

items pending for delivery a week before the delivery is pending and items pending on due date. The same should be reconciled against items received vis a vis pending report. 3.14 Follow up activitiesl Weekly auto online reminders should be sent to accounts department for making due payment

to the vendors as per the P.O payment terms. The details of this would be available on line in the system against GRN creation.l Purchase department should send monthly advance payment planning advice for the next

The suggested format for the same is as shown below: Payment Planning Advice Statement as on 31/ /

month to the Accounts department against invoices with on-line information support and checks. However, this process could be further re-engineered by full development of IT system to eliminate Purchase department intervention. The same can then be generated by the Accounts department itself.

P.O. P.O. Supplier Supplier Qty. Order GRN GRN Payment due Advance Balance No. Date Code Name Recd. Value No. Date date Paid Amount due

Figure 13: Suggested Standard report for payment planning advice

l Weekly follow up with the supplier for delivery of material should be done by the Purchase

department. Web based follow up for over due delivery should be introduced with vendors who have such facilities.l Purchase department should follow up on a monthly basis, the number of times production has

been affected/stopped for want of material.l Purchase department should follow up with vendors for replacement of rejected materials.

3.15 Measurement of Internal Performance Efficiencyl Purchase department should monitor lead times to assess the internal performance of its activities

and set SLAs (Service level agreements) for services to its internal customers.26 Management Services Division

PURCHASE The purchase department should monitor the following lead times:l Time taken from approved indent by stores department to issuance of enquiry flotation l Time taken from indent to issuance of purchase order l Simultaneously the purchase department should show the time lost (if any) in getting technical

clarification from Indentor.l After receipt of offers the time taken for vendor selection and for placement of order. l Purchase department should measure actual lead time specifically for critical items against the

set standards.The following figure shows the suggested standard format to measure variance between set and actual lead times for procurement of critical items: Sl. Item Description No. Lead Time Statement of major critical items 2002-03 2003-04 2004-05 Target Actual Target Actual Target Actual

Figure 14 : Suggested format for measuring lead time for critical items

l The purchase department should evaluate its performance efficiency on a quarterly basis.Standard performance evaluation parameters is suggested below: Sl. Performance parameter No. Unit July Sept. Target July-Sept. 2003-04 2004-05 2004-05 2003-04

1 Purchase Related Parameter 2 No.of indents received (Avg.) Nos./Month 3 No. of Pos raised 4 PO/Buyer 5 PO/Buyer 6 Urgent indents 7 Ordering Time (Overall) 8 No. of Indent Processed 9 Indent Processing time 10 Pending Indents 11 Over Due Orders 12 On time receipt of material % 13 Stock outs

Nos./Month Nos./Month Value/Month % Days Nos./Month Days Nos./Month Nos./Month Nos./Month

Figure 15 : Suggested Standard Performance Evaluation Parametre SOP-Purchase and Stores 27

PURCHASE The targets for each performance measure should be set based on past years performance.l The quarterly performance MIS should be reviewed by Commercial Head/ Materials Head. l Purchase department should measure annually the material cost inflation index for critical

items to arrive at the actual cost of material over a period of time in real terms (after adjusting for effects of inflation/deflation). This also provides an indicator for the negotiating efficiency of the purchase department. 3.16 Job Workl Departments should provide work indents to purchase department by specifying the nature,

expected cost and detail working of a particular job.Units format should contain the following information as shown in the suggested format for work indent:

Work IndentDepartment : Work Mobilisation Date: Last WO No.: Work Completion Date : Last WO Date: Estimated Value : Last Supplier: Last WO Rate: Indent No: Date : Block Code : Capital/ Revenue: Material

Sl. Work Code Detail of Works Unit Qty. Rate Value With/Without Remarks No.

Enclosures : Tick for the type : i) Imported/Indigenous ii) Service Contract iii) Work Contract iv) Maintenance Contract Initiator Recommender

Remarks:

Approver Figure 16: Standard format for Repairs/ Job work

l Following are the suggested clauses to be included in any work order contract: q Scope of work- It should specify the detailed scope of work. q Material It should specify who will be responsible for arranging the materials. q Transportation On whose account would transportation be charged. q Consumables, tools and tackles On whose scope would supply of consumables,

tools & tackles be.q Rates It should specify the payment rate and what is included in the rate. q Payment terms It should specify the credit period.28 Management Services Division

PURCHASEq Taxes and duties It should specify to whose account taxes & duties would be. q Retention money It should specify if any amount would be retained for the durations of the

contract or beyond.q Performance/Workmanship guarantee Whether there would be any guarantee period

after completion of the work.q Inspection Who will be responsible for inspection during the progress of the work at site. q Risk Purchase clause In case of failure to meet the commitment whether additional charges

for getting the work done by other contractor/s would be deducted from the original contractor concerned.q Termination On what occasion will the company have the right to terminate the contract

before completion of the work.q Work Completion and final bill certification - The work completion as well as the bills

should be certified by the concerned user as per the order terms and the name of the person responsible to authorise should be mentioned in the order itself.l Tenders should be floated for each work indent except where rate contract exists. l There should be fixed rate contracts for regular job work, repetitive in nature. For e.g. rate contracts

can be fixed for refractories, insulation, horticulture, repeated hiring of machines and major civil works.l Rate contracts should be annually reviewed. l Tenders should be floated or communicated through email/ post/ fax/ internet/ Newspapers. l Standard work proposal should be prepared and sent to each potential contractor. l The vendors should visit the site of job order before submitting the tender. l Atleast three offers for the tender should be received. In case of proprietary items, know how etc

atleast two offers for the tenders should be received.l Tender date should not be extended but for exceptional cases. l Exceptional extension of bid opening dates and extension of job completion date should be approved

on value basis by Unit Head. Price increase should be approved as per delegation manual.l Tenders should be opened only on a particular day. l The details of a procurement should not be disclosed to an unsuccessful bidder (this is called

debriefing).


29

PURCHASEl Unit should not play one Vendor against the other, disclosing ones price and inviting the other to

beat it. This is called bid shopping and is considered unethical. However, keeping L1 offer in mind, making a counter offer or expected price is not unethical. Of course, first counter offer or l Documents to be maintained for Job has toincludes cost analysis, work order, indent, offers, expression of expected price work be to the L1 Bidder. comparative bid analysis, sanction form, approval papers, annual rate contracts, declaration of goods for job work, challan for movement of goods from one processor to another processor, stock registers, outward gate pass and inward records.l A work order of order value Rs.1 should be raised by the purchase department so that the

item sent out for repairs comes under the pending PO list for effective monitoring. The POs should have an extra flag to indicate that the POs are for repair items.Price comparative chart should be prepared for the quotations received for annual job contracts as shown below :

Dept. Code:Sr. No Work Description GROUP A 1L 2M SUB TOTAL (A) GROUP B 4X 5Y SUB TOTAL (B) Grand Total (A+B) Qty Unit Quoted

UNIT: PRICE COMPARATIVE CHARTTechnically Acceptable AB Negotiated Amt. Quoted Negotiated Amt. Rate L1 Amt. Existing (Last) Rate Amt. C Quoted

Date

Tech. Not Acceptable D Quoted Rate Amt. Rate Amt.

Rate Amt. Rate

Rate Amt. Rate

1 Work Completion Within 2 Weeks Within 1 Week 2 Payment 3 Guarantee 4 Remark, if any Work Indent No. XXXXXXXX Note: Service tax 10.2% shall be paid extra. However the same shall be Cenvatable and hence, the effective price shall not be affected. Legends: L1. Lowest Rates

Figure 17 : Comparative statement of quotations received for work activities-Indigenous Sources

3.17 Review Meetingsl Stores and purchase review meetings with all the user departments should be organised on a

monthly basis on pre defined dates.30 Management Services Division

PURCHASE4. ACCOUNTSThe following figure shows the details of the Current Accounts Payable process :Stores Prov. GRN converted to final GRN & approve for Bill passing Auto work flow alert for bill passing goes to Accounts department Receive auto work flow alert from Stores IT System and monthly payment advice plan from Purchase Accounts Vendor

Check for due date, payment amount and Create payment (debit entry) Is it an inventory item? No Update PO End Yes Update GL Print and send cheque Receive cheque End

Figure 18 : Overview of Accounts payable system

l As soon as the stores department updates and approve GRN for Bill passing auto work flow should go

to Purchase and Accounts department. After receiving the payment advice, Accounts Payable system should perform the invoice audit and approval functions by checking invoice details such as amounts, unit price, terms, tax, freight, etc. against the purchase order. Data entry effort would be minimal, because invoice details would be built from the purchase order and would be displayed on-line. Accounts payable department concerned person will deal only with the exceptions, resulting in maximum l Accounts department monitors timely payment to the creditors. Accounts department should monitor efficiency process control. with fullefficiency for this activity, as until this is accomplished, vendor relationship can not be managed well.l Cheques to the vendors should be sent/ handed over to vendors by Accounts section as a measure of

internal control and the same should not be handled by purchase department.l There should not be any outstanding payments except in exceptional circumstances.


31

PURCHASEl E payment system should be initiated through banks like HDFC/ ICICI or any other banks. l System should enlist the payments to be made specifically during the discount period to avail of cash

discounts. The same should be monitored on a daily basis.l Online reconciliation of accounts should be done with those vendors who have online facilities. Atleast

all the A class vendors should be targeted for the same.l Advances to vendors must be properly authorised by the concerned person as per the units delegation

manual.l Net amount due to and/or from should be paid/ received from the vendors who are also the customers

of the company.l System should enlist the items on which cenvat credit has not been taken.

32


PURCHASE 5. IT SYSTEM ADMINISTRATION There is a strong need felt for a common material management software system across the group. To start with atleast the same businesses should have common material management softwares. This will also facilitate common item codification.l The IT Materials Management systems should maintain accounting integrity through integration with the

General Ledger.l Distribution entries from purchase orders, Accounts Payable and Inventory issues and replenishments

should be validated directly against the General Ledger.l Offsetting cash, assets accounts, and encumbrances are automated through the accounting rules or

system policies to ensure accounting accuracy.l The integration of the Materials Management functions with the budgetary control function provides the

funds-checking capability required.l All the documents generated should be serially numbered. l All Purchasing, Accounts Payable, and Inventory transactions (commitments, encumbrances, inventory

consumption and replenishment, and expenditures) are checked real-time to the available fund amount calculated through budgetary control functions.l Real-time funds checking ensure expenditures are kept within the authorized budget and provide advance

knowledge of the budgetary status for purchase spend decisions.l Multiple levels of Password / Security should be there in the IT system to restrict access to authorized

users only for creation or correction operations as the case may be. A user rights table should be defined for this purpose.l Online help facility should be available in the system. l Backup and Restore options should be there in the system. It should be able to recover corrupted

database.l There should be user defined Input Fields in the IT system. l Monthly process feedback should be given to the IT section.


33

PURCHASE 5.1 Conversion table for unit of measurementl A conversion table for units of measure will be provided for items that have alternative units of

measure.l Different units of measure may be used for the purchase of materials such as Ltrs, kg, pcs, ml,

tons, nos., bottles, rolls etc. The same unit of measure should be used for the inventory stock and issue of materials in the IT system. However efforts should be made to use only Metric units of measure. Units of measures like Boxes, Bags etc. should be avoided. If necessary, it must be quantified in terms of basic units of measure, like Box consisting of 20 pcs. or Bottle containing 100 ml. etc.

34


PURCHASE6. VENDOR PERFORMANCE ASSESSMENT AND APPRAISAL FOR EXISTING VENDORS

Unit should conduct Vendor Quality Systems Appraisal and Development. 6.1 Vendor Appraisall Quarterly /or At least Half yearly vendor rating should be done for all the critical items on

the above criterias. 6.2 Criteria for vendor appraisal Vendor should be appraised on the following criterias:l Product Quality - 50% weight is to be assigned on quality parameters l On-Time Delivery - 40% weightage is to be given to on time delivery - where on

time delivery is on time delivery in FULL (OTIF). q When the performance evaluation is carried out, the measurement of timely delivery in caseof staggered delivery should be done from required by date to material received date as and when part consignment is received.l Service 10% weightage is to be given.

6.2.1 Vendor rating based on delivery parameters : Delivery rating basis will be as per the delivery terms defined in the PO. If any shipment is past due and there are no receipts for the same, then such transactions should be considered and delay days will be the difference of SYSTEM DATE and SHIPMENT DATE. Units could assign individual weights for delivery delays. Suggested ideal weightage to be given for vendor rating for delivery is given below: Q1 + Q2 (1 - C) DR = x 100 Q Where Q = Total quantity ordered Q1 = Quantity received on or before desired delivery schedule. Q2 = Quantity received after the desired delivery scheduleSOP-Purchase and Stores 35

PURCHASE C = 0.1 x No. of days delay for quantity received beyond due date. e.g. 80% of material is received as per desired schedule & 20% received after 10 days delay. 80 + 20 (1 - 10 x 0.1) DR = = 80% 100 e.g. 80% of the material is received in time & 20% after 20 days. 80 + 20 (1 - 20 x 0.1) 80 - 20 DR = = = 60% 100 100 Calculation of Delivery Rating: Vendor rating will be calculated for each shipment level, Let QTY= hipment quantity QTY1 = Quantity received in Receipt-1 QTY2 = Quantity received in Receipt-2 QTYn = Quantity received in Receipt-n R1 = Vendor Rating for QTY1 R2 = Vendor Rating for QTY2 Rn = Vendor Rating for QTYn Then vendor rating R for Shipment Quantity QTY = (QTY1 * R1 + QTY2 * R2 + . + QTYn * Rn ) / (QTY1 + QTY2 + . + QTYn) Effect of Short supply of shipment quantity on delivery rating: For the short supplied quantity below the lower tolerance limit specified in shipment, calculate the rating for the shipment quantity (not the lower limit with tolerance). If the supplied quantity is within the tolerance limit, then receipt quantity should be treated as equal to shipment quantity. If PO has been closed/ amended because of abnormal delays, then it will have zero rating for the short supplied quantity.Management Services Division

36

PURCHASE Effect of Excess supply of shipment quantity on delivery rating: If any received quantity is greater than shipment quantity then the received quantity should be treated as equal to shipment quantity. Negative marks should be considered for excess supply (in excess of the tolerance limit) to deter suppliers from adopting such practices.The following figure shows the suggested detailed report layout on delivery rating :VENDOR WISE DELIVERY PERPORMANCE MONITORINGFor the Month .. Vendor Code & Name Days Item PO No. Required Required Qty delivered Delivery date Qty delivered Excess/ Delay value of C Rating (%) Grade Code by date Qty as per reqd. after reqd. after reqd. Shortage days by date by date by date

1 2 3 4 5 6 7 8 10 9 1112 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

a b c d e f g h i={e-(f+h)} j = (g - d) k = (0.1 * j) L= [{f + h(1-k)} / e] * 100

Average Monthly rating

Figure 19 : Vendor Delivery Rating detailed Report SOP-Purchase and Stores 37

PURCHASE 6.2.2 Vendor Rating Based upon Material Quality :The following figure shows the detailed report layout on quality rating :Detail Report layoutFor the period from: To : Date :

Sl. Supplier Site PO Item Item UOM Shipment Qty accepted with grade Qty Total No. Code Description qty as per PO Name Code No. Date QA1/QA2/QA3 QA4 QA5 QA6

Rejected Quality Rating

Figure 20 : Vendor Quality Rating detailed Report

INDEX : 1. QA1 is the Quality code - Best Quality also QA2 &QA3 acceptable quality 2. QA4 is the Quality code - Accepted with minor deviation without financial impact 3. QA5 is the Quality code - Accepted with deviation with financial impact up to 5% 4. QA6 is the Quality code - Accepted with deviation with financial impact more than 5% 5. In case of wrong rejection by QA but subsequent acceptance by re-inspection QA will change the Quality code from earlier rejected code of QA6 to QA1 or QA2 or QA3 as the case may be. Units should assign individual weights to the above parameters.Suggested weights are as follows: Sl. No. Quality 1 Material accepted with Quality Code QA1, QA2 & QA3 50 50 2 Material accepted under Deviation Quality Code QA4 45 45 3 Material accepted under Deviation Quality Code QA5 35 35 4 Material accepted under Deviation Quality Code QA6 20 20 5 Material rejected 38 00 Weightage Rating


PURCHASE Calculation of Quality Rating: Vendor rating will be calculated for each shipment level as given below: Let QTY = shipment quantity QTY1 = Quantity received with Grade as QA1 QTY2 = Quantity received with Grade as QA2 QTYn = Quantity received with Grade as QAn R1 = Vendor Rating for QTY1 R2 = Vendor Rating for QTY2 Rn = Vendor Rating for QTYn Then vendor rating R for Shipment Quantity QTY = (QTY1 * R1 + QTY2 * R2 + . + QTYn * Rn ) / (QTY1 + QTY2 + . + QTYn) 6.2.3 Vendor rating based on service parameters : Service ratings should be done on the following suggested parameters with the following weights: S1 - Cooperativeness and readiness to help in emergencies 5% S2 - Readiness and promptness to replace rejected material 3% S3 - Providing support documents in time 2% Units can assign individual weights to the above parameters.The following figure shows the summary report layout on Service rating SUMMARY REPORT LAYOUT FOR SERVICE RATINGSl. No. Suppliers Suppliers Suppliers Item S1 S2 S3 SR= (S1+S2+S3)/100 Remarks Name Code Site Supplied

S1 - Cooperativeness and readiness to help in emergencies S2 - Prompt replacement of rejected material S3 - Providing support documents in time Figure 21: Vendor Service Rating summary SOP-Purchase and Stores 39

PURCHASE 6.2.4 Overall Vendor Rating :l Overall rating will be a sum of Delivery rating, Quality rating, Service rating.The following figure shows the overall supplier performance rating report layout prepared on atleast half yearly basis: SUMMARY REPORT LAYOUT FOR OVERALL RATINGSl. No. Suppliers Suppliers Suppliers Item Quality Delivery Service SQR Supplier Remarks Name Code Site Supplied grade

Figure 22: Supplier Quality Performance Rating (SQR)

6.2.5 Vendor Grade:l Vendor Grades are calculated as follows:

If Over all Vendor Rating > = 85% then Vendor Grade = A If Over all Vendor Rating > = 65% and < 85% then Vendor Grade = B If Over all Vendor Rating < 65% then Vendor Grade = Cl Quarterly Communication of vendor ratings to under performing (c rated) vendors

and annual communication should be given to all the vendors.l Head (Purchases) should be responsible for evaluating the Suppliers performance. l Computerized Vendor Performance appraisal and Feedback should be available. l The Purchase department should recommend areas of improvement to vendors and

assists them in upgrading their Quality Systems.

40


PURCHASEThe following figure shows the standard format for communicating the performance feedback to vendors:

Layout for External Communication< Organization Address As being printed on PO>

Page ______ of _____ Date : _________

Rating Period From:._______________________________ To ___________________________ Vendor Code:__________________________________ Vendor Email: _________________________ Vendor Name: _________________________________ Vendor Contact: _______________________ Vendor Address: _______________________________ Dear Sirs, As you are aware, we are doing vendor rating on quarterly basis. The vendor rating is based upon the following: Aspect a Quality 50% b Timely delivery 40% c Service 10% Quarterly ratings of 3 preceding consecutive quarters are considered at the time of ordering. For example, order I placed between October - December shall be on the basis of rating between January & September. Vendor rating is having direct bearing on the share of business, other things remaining the same. The vendors have been rated based on the performance which is as under: Sl.No. Grade Rating Category 1 A 85-100 Excellent 2 B 65-84 Good 3 C < 64 Poor The actual rating is as under: Oct.02-June03 July02-March03 April02-Dec.02 We look forward to your commitment in this regard. Thanking you, WeightageYours faithfully, ForAuthorized SignatoryContd........SOP-Purchase and Stores41PURCHASEText Messages: Case 1. If current rating is better than both the earlier ratings then message-text should print as We find that there is an improvement in over all rating. We are confident that you will strive and get EXCELLENT rating in all times to come Case 2. If all the 3 ratings are C then message-text should print as We find that you are regularly falling in POOR category. Kindly improve your rating to enable us to have business relationship. Case 3. If all the 3 ratings areAthen message-text should print as We are pleased to inform you that you have been rated EXCELLENT in last 3 assessments. Case 4: If current rating is lower than earlier ratings, then message-text should print as We find that there is deterioration in the vendor rating. We would like you to ensure that you work towards achieving EXCELLENT rating. Case 5: If all 3 ratings are B, then message-text should print as We find that you have been continuously rated GOOD, we would like you to ensure that you work towards achieving EXCELLENT rating. Figure 23: Standard format for external communication to vendorsl Purchase department should monitor percentage (%) of A rated vendors. l Rating of last 3 consecutive assessments shall be mentioned in current approved vendor list.6.3 Vendor assessment for Contractors and Service providersl Vendor rating and grading should be extended to A class contractors and service providers coveringtop 20% of the contracts within the next 12 months. It should be extended to all the contractorsproviders by end of December 2006. and servicel The rating should be done on the 4 suggested parameters mentioned below with thefollowing weights : q Price q Statutory Compliance q Performance with respect to assigned jobs q User Satisfaction 25% 25% 25% 25%42Management Services DivisionPURCHASE 6.4 Delisting of vendorsl Vendor who has been graded as C for two consecutive quarters should be given warning forimproving their performance.l Vendor who is rated as grade C for 4 consecutive quarters should be considered for delisting.Final decision should be taken by appropriate authority as per units delegation manual considering various aspects associated with the nature of item.l Inoperative vendors with whom units have not done any business for atleast 2 years should bedelisted. 6.5 Vendor Assessmentl Two means of fostering the partnership approach with vendors should be followed atleast forkey and proprietory items: q To commit long term agreements with Vendors in exchange for discounts, favourable credit terms and other benefits. q To share the savings when they identify cost reductions.l Need based training should be provided to vendors workers and supervisors. l Joint improvement projects should be taken with vendors. l There should be periodical onsite visit to the vendors place. Schedule for such visits should bedrawn in advance.The following figure shows the proforma schedule drawn in advance for onsite visit to vendor s place:SCHEDULE FOR ON-SITE VISIT TO VENDORS' PREMISES DURING THE YEARI te m Descr ipt ionR A W MA TE R IA LM onth s Ap ri l Ma y J u ne Ju ly Au g us t S ep temb er O cto be r N ov emb er Dec emb er J an u ary F eb ru ar y Marc hPA PA PA PA PA PAPA PA PA PA PA PAABCDFigure 24 : On site visit schedule to vendors place SOP-Purchase and Stores 43PURCHASE Onsite visit report should be made by the visiting committee.The following figure shows the onsite visit report layout :ON SITE VISIT REPORTSl. No. Particulars 1 Name of person who has visited 2 Name and place of vendor visited 3 Name of person contacted/discussed with 4 Prime purpose of visit (specify) a Problem related b Development c Follow up d Continuous Capability Assessment 5 Observations/comments : a Observation about set up b No. of production line and capacity c Testing and quality control facility d Having any documented QMS/EMS e Operating capacity at the time of visit f Stock of raw material for our product g Scheduling of various job and our position in schedule h General financial condition i Industrial relation condition j Vendors input inventory/procurement position k Any other observation important to our Business 6 Overall comments : a Problem related : i Problem clearly understood by concerned officials (Yes/No) ii Concerned officials have concern for our problem (High/ Hoderate/ Low) iii Commitment to resolve the problem (by Mr.) (Yes/No) iv Availability of necessary resources to resolve our problem (Yes/No) v Any other comments b Developmental Related : i Our development requirement is clearly understood (Yes/No) ii Vendor is having necessary resources including R&D to make the development as per our requirement (Full/Partial) iii Commitment to make the development (by Mr..) (Yes/No) iv Agreed/expected date of first result of this development c Continuous Capability Assessment related : i Vendors capability to manage resources for us (High/Moderate/Low) ii Vendors commitment to execute our requirement in terms of :l Quality (Better/Good/Fair/Poor) l Quantity (Better/Good/Fair/Poor) l Timely delivery (Better/Good/Fair/Poor) l Other Services (Better/Good/Fair/Poor)ObservationsComments of HOD Purchase Signature : Name of visiting officer: Date:Contd.....44 Management Services DivisionPURCHASEEVALUATION ON ENVIRONMENT, SAFETY AND SOCIAL ACCOUNTABILITY ASPECTS Sl. No. Particulars A ENVIRONMENTAL 1 Adequate measures are taken for disposal of process & hazardous waste 10 2 Surrounding area is adversely affected by manufacturing process (water, noise, air. soil) 3 Equipped with monitoring of pollution level 4 Accredited with ISO 4001 or any other certificate or willing to obtain the same Sub total 40 B HEALTH & SAFETY 1 Employees are found working under safe working condition and using safety/PP equipment while working 2 Adequate fire extinguisher available. 3 Medical facilities provided/available in nearby area. Sub total 30 C SOCIAL ACCOUNTABILITY 1 No child labour is engaged in the company 2 No discrimination is done on the basis of sex, cast & religion 5 3 Employees are made to work 48 hours a week 4 Employees are given one day off in seven days 5 Overtime is paid at premium rates 6 Salary/compensation is made to all employees as per Minimum Wages Act. 5 Sub total 30 Total Rating (above 90% - A, 80-90% - B & below 80% -C) Sl. No. MARKING CRITERIA 1 Physical verification of elements during on site visit, verification of documents, evidence etc. 2 Verification through visual inspection 3 Verification based on information provided by Vendor 4 Special remarks shall be given, if marking is given below Figure 25 : Suggested Onsite Visit Report Rating 90% and above 79 80% 60 70%