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STUDY OF MATERIALS MANANGEMENT
A PROJECT REPORT
Submitted by
SUNNY KINIBatch 2010-12
in partial fulfillment for the award of the degree
of
POST GRADUATE DIPLOMA IN MANAGEMENT
Under the Guidance of
Prof. Suhas Prabhu
THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH
KANDIVILI
MUMBAI
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CERTIFICATE
This is to certify that this project report on STUDY OF MATERIALS
MANAGEMENT is a bonafide work of SUNNY KINI in part completion of the
POST GRADUATE DIPLOMA IN MANAGEMENT has been done under my
guidance.
The project is in nature of original work that has not so far been submitted for any
degree of this university.
References of work and relative sources of information have been given at the end of
the project.
Signature of the candidate
(Sunny Kini)
Forwarded through the research guide.
Signature of the guide
Name of Guide: Prof. Suhas Prabhu
Designation: HOD Operations
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ACKNOWLEDGEMENT
Many individual have contributed to this preparation of this project. This
project is the result of competence, sincerity, and devotion of the individual who have
been involved in this project.
It brings great inexplicable mirth to me while expressing my gratitude towards
those who have helped me in completion of the project work entitled.
Study of Materials Management
To the satisfactory completion of the project, express my deepest sense of
indebtedness to my guides Mr. N.Vibhooshna Raj, Sr. Manager, Warehouse
(HPCL) and Mr. Siddharth K Patil, Manager, Materials (HPCL) for their esteem
guidance, valuable suggestion and supervision with utmost care and zeal through the
course of this project work.
I would like to extend my sincere thanks to my internal guide Prof. Suhas
Prabhu who gave me continuous source of encouragement and cooperation
throughout.
Last but not the least; I am thankful to Mr.V.K.Sinha and the entire training
department for giving me this self-obligating opportunity.
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ABSTRACT
Materials Management is the operation of continuously arranging the ordering,
purchase, receipts & issues so that stock balances are adequate to support the current
rate consumption with due regards to economy. It is the mean by which material of
the correct quantity & quality is made to be available as & when required in storage &
ordering costs, purchase price & work in economy.
It is imperative to manage inventory efficiently & effectively in order to avoid
unnecessary investments in them. The study pattern used in this study is face-to-face
interaction. Experts of different departments have been consulted. Most of the data
has been gathered from Main Warehouse and Purchase department of the company.
The various aspects covered during the interaction phase were need & features of
inventory control, MAXIMO system, Purchase process etc.
An attempt is made to cover each & every macros of functioning of Materials
department.
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Executive Summary
This report documents the work done during the summer internship at Hindustan
Petroleum Corporation Ltd.
This project was undertaken with the objective of understanding the Materials
Department at HPCL. The study involved a thorough understanding of the process
being followed at the Main Warehouse and the Purchase Department.
The study involved understanding the warehouse functions of Ordering, Receiving,
Binning and Issuing. Also it provided an insight into the purchase functions such as
Tendering, Vendor Selection and Order Placement along with the process of E-
procurement, Reverse Auction and Scrap Disposal
I have tried my best to keep report simple yet technically correct. I hope to succeed inmy attempt.
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TABLE OF CONTENT
S.NO.
Description Page no.
1. ACKNOWLEDGEMENT. 32. ABSTRACT. 43. EXECUTIVE SUMMARY 54. COMPANY PROFILE. 8-95. OBJECTIVES OF THE PROJECT. 106. INTRODUCTION. 11 -127. MATERIALS DEPARTMENT. 13-158. IMPORTANT CONCEPTS. 16 -20
a. Nature of Contracts. 16b. Stock Item. 16
c. Present Item Classifications. 17 -18d. Criteria for Present Stocking Norms. 19-20e. Just-In-Time. 20f. ABC Analysis. 20
9. MAIN WAREHOUSE. 2110. ORDERING SECTION. 22 -24
a. Addition. 22b. Deletion. 23c. Ordering Cell. 23d. Follow Up Cell. 24
11. INVENTORY SECTION. 25-27a. Physical Inventory Verification. 25b. Day to Day Inventory. 26c. Inventory Turnover Ratio. 26-27
12. RECEIVING SECTION 2813. INSPECTION SECTION 29-3014. ISSUE SECTION. 31-3215. PURCHASE DEPARTMENT 33-3416. PURCHASE POLICIES 3517. PURCHASE PROCEDURE 36-39
a. Tendering 36-39
b. Technical Review 3918. E-PROCUREMENT 40-4119. REVERSE AUCTION 42-4319. FORIEGN PURCHASE 44-46
a) Responsibility 44b) Letter of credit 45c) Types of Documents. 45-46
20. VENDOR MANAGEMENT 4721. PROCEDURE OF SCRAP DISPOSAL 48
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22. GRAPHICAL REPRESENTATION 49-5023. RECOMMENDATION 5124. CONCLUSION. 5225. BIBLIOGRAPHY. 53
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COMPANY PROFILE
HPCL, a Fortune 500 company, is one of the major integrated oil refining and
marketing companies in India. It is a Mega Public Sector Undertaking (PSU) with
Navaratna status.
HPCL accounts for about 20% of the market share and about 10% of the nation's
refining capacity with two coastal refineries, one at Mumbai (West Coast) having a
capacity of 6.5 Million Metric Tonnes Per Annum (MMTPA) and the other in
Vishakhapatnam (East Coast) with a capacity of 8.3 MMTPA. HPCL also holds anequity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited (MRPL), a
state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA.
HPCL owns the country's largest Lube Refinery with a capacity of 335,000 Metric
Tonnes which amounts to 40% of the national capacity of Lube Oil production.
Timeline:8
Particular Details
Company Name Hindustan Petroleum Corporation Limited
Establishment year 1974
Address of Registered Office Hindustan Petroleum Corporation
Limited,
Petroleum House,
17, Jamshedji Tata Road,
Mumbai 400020
Maharastra, India
Address of company HPCL-Mumbai Refinery
Bhikaji Damaji Patil Marg, Old Corridor
Road, Mahul, Mumbai - 400074
Maharashtra.
Telephone No 022-25076000
E-mail [email protected]
Turnover of the company Rs 1,40,000.310 crores ( Audited
consolidated)
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1952: The Company was incorporated in the name of Standard Vacuum
Refining Company of India Limited on July 5, 1952.
1962: On 31st March, 1962 the name was changed to ESSO Standard
Refining Company of India Limited.
1974: Hindustan Petroleum Corporation Limited comes into being after the
takeover and merger of erstwhile Esso Standard and Lube India Limited.
1976: Caltex Oil Refining (India) Ltd. - CORIL is taken over by the
Government of India with an Ordinance in 1976, subsequently ratified by an
Actin 1977 and merged with HPCL in 1978.
1979: Kosan Gas Company, the concessionaries of HPCL in the domestic
LPG market, are taken over and mergedwith HPCL.
HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101
Regional Offices facilitated by a Supply & Distribution infrastructure comprising
Terminals, Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland
Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the
years, has moved from strength to strength on all fronts. The refining capacity steadily
increased from 5.5 MMTPA in 1984/85 to 14.8 MMTPA presently. On the financial
front, the turnover grew from Rs. 2687 Crores in 1984-85 to an impressive
Rs 1, 40,000.3 Crores in FY 2010-11.
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OBJECTIVES OF THE PROJECT
To get practical industrial exposure.
To understand the Materials Management System of Hindustan Petroleum
Corporation Ltd.
TO understand MAXIMO system of managing the Inventory.
To understand the process of Materials Procurement.
TO analyze the current procedure of Vendor Development & Rating.
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INTRODUCTION
The term Materials Management is derived from the evolution of the purchasingfunctions to meet the growing complexity of the industrial structure.
Materials Management is an enterprise for the acquisition and use of materials
employed in the production of goods. It is used for the group of activities concerned
with purchase of materials and services to the point where they are economically useful.
Thus Materials Management can be defined as the concept of operation commencing
which systematically integrates horizontally related materials functions, commencing
with determination of materials needs and culminating in the delivery of finishedproducts.
Materials Management has a wide scope and broadly covers fairly well dispersed
functions of management which are as follows:1. Material planning and programming.
2. Purchasing and outsourcing.
3. Inventory control.
4. Storekeeping and warehousing.
5. Codification.
6. Standardization and evaluation of all products.
7. Transportation and material handling.
8. Inspection and quality control.
9. Cost reduction through value analysis.
10. Disposal of surplus / obsolete material.
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11.Distribution.
The objectives of materials management are interrelated in many concerns. Thesedecisions are taken by different functional specialists. They are as follows:
Primary Objective of materials management
1. Low prices- to be lowest - includes transportation: enhances profit.
2. High inventory Turnover- value of inventories to be low in relation to
sales. Reduces storage costs.
3. Low cost acquisition and possession- reduced handling and storage costs.
4. Continuity of supply- alternative sources, captive suppliers, flexible suppliers.5. Low payroll costs- Low operating costs of material management personnel.
6. Favorable supplier relations- supplier development.
Secondary objectives of Materials management-
1. New materials and products- working closely with Design and research
departments for development of new materials and products.
2. Economic make-buy- Coordinating and assisting other departments in Make-Buy decisions.
3. Standardization- coordinating with Design departments in reducing no. of
items.
4. Product improvement- Contribution towards product improvement by giving
appropriate inputs and assisting Design department.
5. Interdepartmental Harmony- Success of materials management department
depends on the success of other departments. hence relations are to be
harmonious
Scope of Material Management:-
The scope of material management includes decision on purchasing raw material,
management & control of work in progress items, Warehouse and the shipping and
distribution of finished products. The materials flow is divided in to three different
overlapping functions Production control, inventory control & the material handling
function.
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MATERIALS DEPARTMENT
The materials department at HPCL has two main sections:
1. Main Warehouse.
2. Purchase.
Warehouse
A warehouse is as storehouse specially designed for receipt, storage and
handling of goods. Warehouses are also called as distribution centres or
logistics centres.
Different types of Warehouses
1. General Warehouse: Warehouse with a variety of goods.
2. Specific Warehouse: Warehouse having a limited line of goods like
Cloths and Chemicals.
3. Bonded Warehouse: Warehouse authorized by customs officials for
storing goods without payment of excise taxes or duties till they are
removed. Government laws regulate these warehouse
4. Bulk Storage Warehouse: Warehouses that handles liquid goods such as
petroleum, fuel oil etc.
5. Refrigerated Warehouse: Warehouse where perishable goods are stored.
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6. Field Warehouse: Warehouse hired by an organization in another
organization premises.
Different activities carried out in warehouse
1. Maintaining the Item Catalogue.
2. Reordering the stock items.
3. Following up with vendors for materials after PO placements.
4. Materials receipt- In-warding of the materials.
5. Materials Inspection- Offering the materials for inspection, coordination
with the inspecting groups.
6. MRR preparation of received materials.
7. Material binning.
8. Issue of Materials to user groups.
9. Receiving the excess materials from the user groups.
10. Physical verification of the inventory.14
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Purchase
The term purchasing describes the process of buying, learning of the needs and
following up to ensure quick delivery.
Elements of purchasing
1. Price: It is an important element of purchasing function. The supplier
tries to secure maximum price for the products whereas purchase tries to
secure the same at the most economical rates.
2. Quality: Quality determines the price of goods. It involves consideration
as materials, goods workmanship, sizes, designs, colour and patterns.
3. Quantity : Quantity to be purchase depends upon anticipated sales.
4. Sources of Supply : It becomes easier to locate desirable sources of
supply by means of purchasing records.
5. Time of Delivery: It is necessary that all materials for a job arrive in time
to avoid delay in work for which the product was purchased.15
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Purchase Cycle
1. Identification of Requirements.
2. Selection of Proper source of supply.
3. Deciding on Quantity and Quality.
4. Finalizing Delivery Schedule and Price.
5. Placing a purchase order.
6. Arranging the transportation.
7. Receiving the material in the stores.
8. Bill settlement.
Important concepts
Nature of contracts is as follows :
1. Standing Order
2. One Time Order
Standing Order:
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Standing Orders are generally applicable for service contracts. These contracts
are developed for attending various routine nature jobs as and when required on
daily. Such contracts are usually valid for a period of six months to one year.
Turnaround & Development Department develops all regular Standing Orders
for normal as well as turnaround maintenance jobs. However, each
Maintenance Section also develops certain contracts of this nature on needbasis.
One Time Order:
These orders cover all one-time requirements for service as well as non-stock
material supplies. The contracts are developed to attend all start-to-finish type
of job requirement with specific delivery schedule. User sections of
Maintenance Department develop these contracts basis recommendations
received from Operations, Technical & Inspection Department.
Stock Items:
Stock item can defined as an item having a proper identification code
with proper reordering norms. Stock Items are procured by warehouse
personnel on the basis of reordering norms and is stored in warehouse after
receipts.
Present Item Classifications
Presently all the warehouse stock items are broadly classified into four
categories i.e.
Essential
Regular
Temporary
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Obsolete
The present criteria for defining the item categories are as follows:
1. Essential:
Item will be treated as Essential only if it shall meet all the criteria given as
follows
I. Item should be an Equipment Spare.
II. Annual Consumption should be less than Four Sets.
III. Non Availability of Spare will lead to production stoppage or major
safety hazard or both.
IV. Item will not be treated as Essential if it meets any of the three criteria
as given below
a. Shop Spare is available.
b. Item is Substitutable.
c. Life can be predicted
2. Regular:
Item will be treated as Regular if it meets any of the following criteria
I. Item is equipment Spare & Annual consumption is more than orequal to Four sets.
II. Item is Consumable & required to be used in more than 4 Months
in a year.
3. Temporary:18
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Item will be treated as Temporary if it meets any of the following criteria
I. For Equipment Spares
a) Annual Consumption should be less than Four Sets.
b) Non Availability of Spare should not lead either productionstoppage or major safety hazard.
c) Item meets any of the three criteria as given below
Shop Spare is available.
Item is Substitutable.
Life can be predicted.
II. For Consumable
a) Item will be required to use in less than 4 Months in a Year
4. Obsolete:
Items are treated as Obsolete if it is not required due to the following reasons
I. Equipment is replaced with an upgraded version and hence out of service
& old equipment is not relocated elsewhere.
II. Equipment is no longer in use hence out of service.
III. Useful Shelf Life of the item expired and hence cannot be used.
Criteria for Present Stocking Norms
At Mumbai Refinery following terminology is being used in the system for
Stocking Norms:
Reorder Point
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Essentiality Level
Economic Order Quantity
Safety Stock
Lead Time
Reorder Point
Reorder point is the item inventory level at which new procurement action
needs to be started. This term is generally used for Regular Items & at HPCL MR it is
being calculated on the following criteria
RP= Monthly Consumption x Lead Time in months + Safety Stock
Essentiality Level
It is the Reorder Point for Essential Items & at MR It is being calculated as
follows:
EL = Monthly Consumption x Lead Time in months + 1
Safety Stock
Safety Stock is the terms used in the context of Regular Items. Safety stock is required
to take care in the event of delay in the delivery beyond the delivery schedules. It is
calculated as follows:
Safety Stock = 0.5 x (Monthly Consumption x lead time in months)
Lead Time
This is an average cycle time between PR date & Material Receipt date (MRR
approval date).
Just -in-Time
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Just-in-Time is a philosophy developed in Japan which is aimed at preventing all
kinds of wastes whatever their nature and wherever they may occur. The basic idea
behind just-in-time purchasing is to establish agreements with vendors to deliver small
quantities of materials just in time for production. This can mean daily, twice-daily,
and sometimes hourly delivery of purchased items. The critical elements of JIT
purchasing are:
1. Reduced lot sizes
2. Frequent and reliable deliveries
3. Reduced and highly reliable lead times
4. Consistently high quality levels for purchased materials
ABC Analysis:
ABC analysis is one of the techniques to control inventory. Under ABC
analysis the inventory items are categorized as A Class Items, B Class Itemsand C Class Items. The A Class Items tend to be either high volume or high unit
cost items which constitute a relatively small percentage of the number of items
in stock but a small percentage of the consumption value. The B Class Items are
somewhere in between.
Under ABC analysis, the following is usually considered as the representative
distribution of inventor items and value.
Category No of Items Consumption ValueA 10-15% 70-75%
B 15-20% 15-20%
C 70-75% 10-15%
Main Warehouse
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Main Warehouse is the place where the materials are received, stored and
supplied to the user for general maintenance of the working plant or unit in
HPCL, Mumbai Refinery.
The 4 sections in the Main Warehouse are as follows:
1. Ordering Section.
2. Inventory Section.
3. Receiving Section.
4. Issue Section.
The various activities that are performed are as follows :
1. New Stock Setup.
2. Deletion of Obsolete Items.
3. Ordering of items.
4. Follow Up.
5. Receiving of items.
6. Physical Inventory Verification.
7. Issue of Items.
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ORDERING SECTION
ADDITION
1. Upon receiving of MAXIMO for making New Stock Set Up From user
Department following jobs to be done by Addition/Deletion Cell Clerks at MainWarehouse.
2. Before the creation of new stock item i.e. entering this data we have to check
whether any similar item exists in MAXIMO, to avoid duplication of any item.
3. Check whether estimate and supply class of item is properly filled.
4. Create new item number in the MAXIMO and feed item description, Maxima,
Minima, Re-order level, Safety Stock, Approximate Procurement cost, Lead
time of procurement, Item category and Vendor Code if the item is proprietary.
5. Attach these items to the four storerooms i.e. Central, Turnaround, Surplus and
Inventory Adjustment in the inventory module according to their Maxima and
Minima and also assign Issue and Receipt Unit e.g. Each, Meter, MT , feet etc.
Process
1. Login into the MAXIMO.
2. Go to the Inventory Tab and select Item Master.
3. In Item Tab, Enter the no given in the proposal for ERTO stock setup.
4. Enter Item Category.
5. Enter Item unit and order unit and save info.23
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6. Now enter specification and save it.
7. Now in item description, we will give description of the item.
DELETION
1. Similar activity is to be done upon receipt of Deletion Memo from user for
unwanted spares which are not to be used or ordered in future i.e. they are to be
made OBSOLETE.
2. We have to enter Stock Category as Obsolete in MAXIMO in all the four
storerooms so that mistakenly also they should not be ordered by chance.
3. Also take out these items from the bins and to kept separately with their
respective Tag of item no, Description and Obsolete Tag for disposal in future.
Ordering Cell
1. Items and needs are ordered only after intimation from user via Email received
from user or only after they are reserved in the Work Order of any specific job.
2. We have to physically verify their current balance and the order the shortfall
without any delay.
3. For about 40% of the total no. of the items we are operating Standing Orders i.e.
Blanket PO for a period of 1to 3 years for which we have to make Standing Order
Purchase Requisition in HS Category in which we have to mention that PR
quantity. These standing orders are to be reviewed at regular intervals.
4. After the finalization of PO for Blanket POs we have to check for current balanceof all the items covered in such POs and also to create release POs for the same
and after approval of the same by our officer we have to either e-mail or fax copy
of Release PO to vendor for early expedition of delivery of these materials.
Few of the PRs we do mention that the quotations received from the vendors to
be reviewed either by the user department or warehouse for technical queries/
specification review.
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Follow up Cell
1. To follow up with vendors for early expedition of material on or before due
date of PO for making the material available for issue in time.
2. This job include Telephonic follow up , by sending Fax through TELEFAX or
E-mail or to visit personally at the vendors Office for early expedition of the
same.
3. To collect the original invoices/Lorry Receipt copies from Finance Department
and send intimation letters to authorised transporters.
4. After making necessary entries in the material clearance register handover the
papers to the authorized transporters for material clearance.
5. Keep follow up with the transporters for early clearance of material.
6. Follow up with Octroi agents for making arrangement for making octroi
payments.
7. Follow up with the inter departments for clearance / delivery of the materials.Xeroxing the original papers and filing the same.
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INVENTORY SECTION
Physical inventory verification
1. Every year take 100% inventory of all the stock items of Main
Warehouse class wise in presence of a finance representative and note
manually quantity available in Bin against each item in the Physical
Inventory Sheet.
2. Thereafter immediately punch in MAXIMO, physical count of each item
counted on that day.
3. Transfer the shortages/overages in Inventory Adjustment Storeroom for
explanation purpose.
4. Review shortages/ overages in MAXIMO in Inventory and try to find out
one by one case wise for explanation of these variations and adjust the
current balance in respective storeroom.
5. Process
i. Login into MAXIMO.
ii. Go to the inventory tab in the MAXIMO.
iii. Generate Input sheet for physical verification.
iv. Enter the code of the class to be verified.
v. Now, the report contains the average cost, storeroom where the items
are kept, Bin number, current balance, Issue unit, Physical count,Category, last date of issue and last count date.
vi. Now, the physical verification of the stock items in the bins is done.
Here the verification is done by the inventory representative in the
presence of the finance representative.
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vii. The inventory is checked for overages and shortages by comparing
the physical count and the current balance in the MAXIMO.
viii. Then the report is finally signed by both the representatives.
Day to Day Inventory
On Daily basis take physical count of all materials issued on previous day so as
to find out if any shortage/ overage are created mistakenly & if found to correct
the same immediately without any further delay by giving necessary
justification.
The major difference between Physical Inventory and Day-to-Day Inventory is
that day-to-day inventory deals with the transactions taking place daily
irrespective of the class whereas inventory keeps track of all the bins in the
inventory class wise throughout the year going class by class.
INVENTORY TURN OVER RATIO
Inventory turnover ratio may be defined as a ratio of Annual consumption (issue)
in Rs. divide by the average inventory in Rs.
Annual Consumption
ITOR = x 100
Average Inventory
This ratio is called Efficiency Indicator.
AN INTRODUCTION TO INVENTORY TURNS OVER RATIO:
Inventory turnover ratio is defined as the ratio of annual consumption value divided
by average inventory holdings. This ratio is also called efficiency indicator. Hence,
higher the inventory turnover ratio the better is financial outlook and system is
considered more efficient. There is considerable scope for improvement in this sphere.
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Inventory turnover ratio= Annual issues in Rupees. / Average inventory in Rs.
Express as percentage the ratio is to be multiplied by hundred.
This ratio is called efficiency indicator.
How to improve the inventory turnover ratio.
A. Efficient reduction of inventories.
B. Discourage flabby inventory due to poor maintenance.
C. Discourage profit-making inventory held with speculative.
D. Reduction in critical & non-critical items lying in stock since long period.
E. Identification of obsolete/surplus items and their disposal/utilization.
Calculation on inventory turnover ratio
ITOR in most of industries in India is around = 1.5
Most efficient one in India is around=3
ITOR in abroad-developed countries is between 6 and 8
28
Year Consumption
Rs.in crores
Average inventory
Rs.in crores
Inventory
turnover ratio
2009-2010 55.13 41.85083 55.13/41.85=
1.32
2010-2011 54.22 36.1 1.57
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RECEIVING SECTION
1. On receipt of material from the vendor, first check in the MAXIMO whether
this particular PO material is pertaining to Material warehouse or not.
2. Thereafter we also have to see whether necessary MODVAT Invoice is
submitted or not if applicable.
3. Once this is done, we have to acknowledge the receipt of material along with
HPCL stamp and the receiving clerk has to sign on the receipt of material.
4. Physically count the material and tally with Delivery Challan for shortfall or
Excess.
5. Inward all the details giving date of receipt, initials of receiving clerk, material
description, quantity received, Challan number and date, MODVAT received or
not, Material Test Certificate received or not.
6. Keep the material for Inspection. On the arrival of representative of the
inspection department offer the material for inspection.
7. Upon endorsement of Inspection officers remarks get the approval of receiving
manager and generate Material Receipt Report.
8. Now bin all the OK material in the respective bin.
9. In case of rejection, generate Report of Rejection Memo after necessary
rejection approval.
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10. Rejected materials are to be kept separately in Rejected Material Bin area with
Rejected Tags so that the materials can be shown to vendor when he comes for
replacement.
INSPECTION OF MATERIALS
1. After the material is received at the receipt section, the material is sent for theapproval of the inspection department.
2. Now, the receipt section sends an email to the respective inspection department
for inspection of the relevant material.
3. At the time of inspection the representative signs on the copy of the email and
verifies whether Test certificate exists.
4. At the inspection department ,the following parameters are checked:
In case of rotating equipment
a. Dimension.
b. Material testing.
c. Surface finish.
d. Hardness testing.
e. Genuineness of spares by checking the related certificates.
In case of electrical equipment
a. Checking of Test Certificates.
b. Checking specifications with respect to the catalogue.30
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c. General visual inspection.
d. Checking of operating mechanism.
5. After the reports of inspection are received the inspection manager enters his
comments in the MAXIMO and sends the reports for the approval of the
inspection manager.
6. On the basis of this report the material is either accepted or rejected.
7. This report is then sent to the receipt department which then takes necessary
action on the basis of the reply of the inspection department.
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ISSUE SECTION
Generate a consolidated report for total material issued/credited for the previousday and attach all the MIRs and MITs in the ascending order of Work Order no.
to be bound to store room for future record purpose.
Upon receipt Of Material Issue Request (MIR) from the user representative,
issuing clerk to verify approving authoritys signature endorsed.
Then go to the respective bin for withdrawing the material form respective bins
for issue purpose.
Accumulate all the issued material at one place on the issue counter for issue
counter for cross verification of material to be issued.
Process in MAXIMO:
1. Login into MAXIMO.
2. Go to the issue and transfers tab.
3. Default Store is Central. Unless we have to enter the type of storeroom.
4. Go to the issue tab after that.
5. Select the reserved items tab.
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6. Select the filter tab.
7. Enter the work order and copy it.
8. Select filter tab.
9. Select the items in the MAXIMO corresponding to the items in the MIR.
10.Finally save the report and copy the work order no.
11.In the report select Material Issue Ticket and paste the work order
number in the space given below and click on submit.
12.The Material Issue Ticket is then generated.
Now three prints of the MIT, one copy is to be retained along with the MIR for
Warehouse record, second copy is submitted to CISF In-charge and the third
copy is to be given to the user department after endorsing issue clerks signature
on all the 3 copies.
Maintain delivery record register of Chemicals/Catalysts &Gas cylinders to be
issued on daily basis and keep track of MIRs received for delivery of the same
and post it in the MAXIMO after they are delivered to the respective
locations/plants.
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Purchase Department
The Purchase department is concerned with the process of buying, learning of
the needs and following up to ensure quick delivery.
The Purchase department outlines policies and procedures governing the
following functions :
1. Purchase of materials and supplies and award of construction/ service contracts.
2. Disposal of obsolete, surplus, unserviceable and slow moving materials and
equipment well as scrap.
Process
1. When a requirement of material is generated at the user department, the
user sends a Purchase Requisition (PR) to the purchase department.
2. The PR is then sent to approval of the purchase manager.
3. After the approval of the purchase manager is received, then the tenders
are floated.
4. Now in case of tenders of value more than Rs. 5lakhs the tender enquiryshould be sent to min. of six vendors and for less 5 lakhs the tender
enquiry should be sent to a min. of three vendors.
5. Now depending upon the value of the following tender are generated:
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a. If the value of the tender is less than Rs. 300 lakhs then limited
tenders are generated.
b. If the value of the tender is more than Rs. 300 lakhs then public
advertisement is generated.
c. In case of Proprietary items single tenders are generated.
6. When strict technical specifications are to be adhered to the quotations
received from the vendors are sent to the user department for technical
review.
7. After the technical review is sent by user department, the price bids of the
selected vendors are opened and the vendor with the lowest quote is
selected.
8. After this, according to the value of the tender the approval of either the
finance department/Head of department/Bids Review committee/Contract
Review committee is taken.
9. After the approval of the relevant committee is taken, then Purchase
Order is placed with the vendor.
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PURCHASE POLICIES
1. Purchasing Authority handles all the purchases and is responsible for all
commitments made to suppliers for equipment, materials, spares, supplies and
services.
2. Securing of price quotations for materials, equipment spares, supplies and services,
will be the responsibility of the Purchasing Authority.
3. The selection of vendors is the responsibility of the Purchasing Authority. If
preference is given to certain vendors, appropriate reasons should be given for the
same.
4. All tenders shall be opened in the presence of intending bidders irrespective of
value or whether such tenders are limited, public, and single tender or otherwise.
5. Items purchased for personal use of an employee shall not be made.
6. Purchase/services shall not be made or availed from employees and their
dependents.
7. Negotiations should be carried out in exceptional cases depending upon
circumstances and market trend.
8. Two Bid system should be resorted to when strict technical standards are to beadhered to.
9. Single supplier will be considered in case of proprietary items.
10. Public Tender will be resorted to in cases of all tenders having a value of Rs. 300
lakhs (high value) and above.
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11. Lowest tender means the lowest of the technically acceptable tenders.
12. The purchase order for MODVAT able locations should clearly mention the basic
price and the MODVAT component separately.
13. e-Procurement including reverse auction will be an acceptable method for
procurement of materials, services and works contract.
PURCHASE PROCEDURE
TENDERING
TYPES OF TENDERS
1. Limited Tenders:
Tenders of value less than Rs. 300 lakhs shall be through a limited tender
except:
a. Where global tenders are considered necessary.
b. When the sources of supply are not known.
In cases of high value purchases (over Rs. 300 Lakhs) limited tender may be
resorted to after approval of the Contracts Committee in:
a. A case of established urgency.
b. A case where sources of supply are definitely known and possibility of fresh
sources being tapped is remote.
In the case of tenders of estimated value of Rs 5 lakhs and above, enquiry
should be sent to a minimum of six parties and for tenders of less Rs. 5 lakhsenquiry should be sent to a minimum of three parties.
2. Single Tenders :
"Single tender means tender floated to one party".
Single tender enquiry would generally arise in the case of:
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i. Proprietary Items
Proprietary items are spares and component parts of a particular brand of
existing machinery/equipment which need replacement and which can be
obtained only from a single manufacturer/authorized agent, or special
formulations available from a single source.
ii. When the Services are of a specialized or critical nature which can be
rendered only by a single supplier.
iii. Where particulars cost cannot be obtained in advance of awarding the job, like
repairs to/ overhauling of equipment.
3. Public Tender:
Tenders should be invited by public advertisement in the press (leading
newspaper by circulation) in the following circumstances:
i. Any tender of a value either equal to or above Rs. 300 lakhs (high value) for all
contracts or supplies
ii. Where global tenders are considered necessary.
iii. When the sources of supply are not known.
For Public Tender apart from inviting public tenders through advertisement in
the press as mentioned above it shall be necessary to publish such notice on theCorporations Web Site also.
PRICED AND UNPRICED TENDERS
For inviting tenders requiring strict technical standards, the following procedure
should be adhered to:
1. Tenders are invited in two parts i.e.
a. Priced Tenders
b. Unpriced Tenders.
2. First the Unpriced bids are opened and sent for technical evaluation.
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3. While sending these tenders for technical evaluation, Purchase Department will
specify the number of days by which the technical evaluation is to be completed.
4. After Technical Evaluation in case of minor changes in techno-commercial scope,
terms and conditions, price implication may be sought.
5. In the event of major changes after Technical evaluation discussion on account of
bidder/owner, revised priced bids may be sought from all
the technically qualified/acceptable bidders.
6. After establishing technical and commercial suitability of the offers, the
corresponding "Priced" tenders should be opened and evaluated within
reasonable time from the opening of technical.
7. If three techno commercial acceptable parties are available, evaluation shall be
conducted by rejecting any and for all the parties seeking deviations, price bids
should be returned unopened.
NEGOTIATION
Negotiations can be carried out with bidders only for reduction in price offered by
them and not for clarifications or change in specifications, delivery terms etc.
For the negotiations, if carried out it must be intimated in advance to the bidder to
ensure that there is no increase in price offered by the bidder consequent to
negotiation.
RATIONALIZATION
Wherever the lowest bidder has been selected for award of contract and a need is felt
for amendment in any terms, including prices quoted by him, the awarding authority
may use his discretion to authorize:
- The Purchasing Authority
- The Finance Representative
- User/Quality Control Department
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to approach the selected vendor for such amendments. This is called Rationalization.
As this does not amount to negotiations, the need for appointment of Negotiating
Team does not arise. Rationalization need not be resorted to, if the LPR estimate is
below Rs1 lakh.
MATCHING THROUGH COUNTER OFFERS
If the lowest acceptable offer is more than 20% of the estimated cost as per purchase
requisition, counter offers for matching with rates as per cost estimate may be made to
the lowest tenderer.
The decision on acceptance of counter offer shall be taken by the Purchasing
Authority with Finance Concurrence.
After this evaluation of the bids is done .Here according to the value of the tender the
approval of Head of Department/ Bids review Committee/Contracts Review
Committee is taken.
TECHNICAL REVIEW
1. The user department generates the PR of the materials that are required. The
PR includes attachments i.e. the notes to purchase and the notes to vendor.
2. Now after receiving the PR, the purchase department floats the tender for the
same and sends it to the vendor (No. of vendors depending on value of the
value of tender).
3. Now for the materials where the technical specifications have a clear
significance, tenders are invited in parts i.e. technical and price.
4. First the technical bids are opened and sent for technical review.
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5. The TR department analyses the technical bids to see whether the vendor is
technically competent enough to deliver the materials of the required
standards, whether the vendor is going to provide the materials with a
deviation from the standards.
6. On the basis of these parameters the technical bid is either accepted orrejected by the technical department.
E-PROCUREMENT
1. E-procurement is another method of procurement. The steps to be carried out on e-
procurement portal will generally be as follows:
a. Floating tender and receiving bids in soft form.
b. Opening of unpriced bids electronically by designated officers, in system in
secured mode.
c. Electronic opening of priced bids or use of reverse auction methodology to
establish prices, with techno commercially acceptable bidders.
d. System generated bid analysis.
2. In case of e-procurement the following clauses read in conjunction with other
provisions will apply :
a. All communication done with vendors in soft form will be acceptable and
considered valid. No hard copy confirmation will be required for the same,
provided the same is properly authenticated by suitable means like digital
certification etc.
b. Since there will not be any hard copy of the tenders received, the opening of
the bids on due date and time will be in the system with access passwords to thedesignated officers. Tender opening can be witnessed by participating bidders
through remote logins to the system.
c. Tenderers shall submit bids either electronically or normally. Some vendors on
manual and others on electronic mode for the same tender shall not be
acceptable.
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d. e -tendering and reverse auction can be operated as mutually independent
events for the same tender meaning it will be acceptable to go for :
i. reverse auction on e-procurement portal for a bid which is called in
manual mode provided price bids are not already opened or
ii. to go for face-to-face negotiations with L1 bidder for and
electronically called bid subject to CVC guidelines.
e. Till the time, e procurement is made mandatory for all the tenders, decision to
follow manual or e tendering mode will rest with individual purchasing
authorities.
f. Audit trails and system logs to be maintained for all transactions on the e-
procurement portals/software during complete tendering process.
g. Historical records for required number of years to be maintained in soft form
with adequate data backup, recovery and archival.
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REVERSE AUCTION PROCESS
Reverse Auction is a procurement process used to secure competitive price by
on-line multi bidding among techno commercially qualified bidders.
In reverse auction process, the qualified bidders get an opportunity to compete on-line
in a transparent and fair manner based on the evaluation methodology stipulated in the
tender without the identity of bidder getting disclosed to other participating bidders,
service provider or HPCL. The entire process is designed to bring complete
transparency in the bidding process.
Reverse auction procedure as well as the business rules with process related terms &
conditions of the reverse auction shall be described in the tender document and also
placed in HPCL website portal. The process business terms & conditions andmodalities unique to reverse auction shall be accepted by each bidder in writing,
before participating in the reverse auction.
Some Important Features of Reverse Auction in this on line process:
1. Reverse Auction shall be visible to Bidder/HPCL only with user log in and
password.
2. Identity of bidders never gets disclosed during/post reverse auction process.
3. In reverse auction, start bid price of each tenderer is expected to be same
as in manual sealed priced bid.
4. Bidders cannot increase their bid once the event has opened up, with submission of
start bids.
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5. Bidder must quote for the complete quantity of each item as per the sample
calculation sheet provided in the Bid document.
6. Bidders viewing the PORTAL can see only their BID and the prevailing lowest bid.
7. Bidder can reduce his bid repeatedly during the auction period.
8. Reverse auction shall be held for a period of not less than 60 minutes and shall be
automatically extended by a further period of 5 minutes in case of receipt of any
bid during the last 5 minutes of the auction period. This process shall continue until
no bids are received in the last 5 minutes of the auction. Thereafter reverse auction
shall get automatically closed. This process is automated and system controlled.
9. The time duration and extensions thereof depend on decision in relation to factors
such as size of the contract, complexities of the contract, number of bidders in fray,
etc.
10.In the event of problems in connectivity during the extended time, the bids could
be secured in a dedicated FAX NO with communication to all bidders to this
effect. The room/box needs to be opened in line with procedure for opening of
tender.
11.Any time extensions due to connectivity problems shall be granted at the sole
discretion of HPCL.
12. Order shall be placed on the lowest bidder, basis item-wise lowest delivered cost
or overall lowest delivered cost.
13. HPCL reserves the right to further negotiate the prices with lowest bidder for
reducing the price/cancel the reverse auction process/tender at any time before
ordering without assigning any reason.
14.On successful completion of the reverse auction, the priced bids received in
manual mode shall be returned to the respective bidders, in as received condition.
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FOREIGN PURCHASES
RESPONSIBILITY
The Materials Department, Mumbai Refinery is responsible for obtaining importlicenses and to make all foreign purchases based on Purchase Requisitions received
from user Departments/Units.
Foreign purchases of individual SBUs i.e. Strategic Business Unit will be handled by
respective Purchasing Authorities of the SBUs.
Foreign purchases, if any, pertaining to Zones will be handled by the respective SBUs
at HQO in their area of operation.
For instance, foreign purchases of items pertaining to LPG-Zone will be handled by
the Purchasing Authority of LPG SBU.
The following points will also have to be considered by the Purchase Departments of
the respective SBUs and Corporate Office:
1. Maintaining and updating the vendor data base shall be done by the Individual
SBU.
2. A six monthly review and updating of the foreign vendor list shall be madewhich will be approved by the respective Contracts Committee of the individual
SBU's.
3. The respective Contracts Committee of the individual SBU's shall certify that
the list of foreign vendors for any item which is proposed to be procured is
adequate and exhaustive; otherwise the tender shall be floated on a global basis.
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4. Opening of L.C. and payment thereof based on Purchase Order/Sales
Agreement from SBU shall be done up to R 4 crores by the respective
authorities.
LETTER OF CREDIT
Commercial letter of credit (LC) is a document issued mostly by a financial
institution, used primarily in trade finance.
Letters of credit are used primarily in international trade transactions of
significant value, for deals between a supplier in one country and a customer
in another.
Letters of credit (LC) deal in documents, not goods.
An LC can be irrevocable or revocable.
An irrevocable LC cannot be changed unless both buyer and seller agree.
With a revocable LC, changes can be made without the consent of the
beneficiary.
TYPES OF DOCUMENTS
Negotiable Documents: Documents/financial instruments which are
received by through banks are known as Negotiable Documents.
e.g. Promissory Note, bill of exchange and cheque.
Non Negotiable Documents: Document of title (such as an air waybill) or
a financial instrument (such as a crossed cheque) that may not be
transferred from the holder or named party to another.
TENDERING
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Tender should be invited directly from manufacturers either through Limited
Tender or through Global Tender.
In respect of purchases of materials including plant, machinery, equipment,
steel plates, etc., from foreign suppliers, tender enquiries/documents, including
notice, whether through Limited Tender or Global Tender, should clearly
indicate that the foreign suppliers should forward their quotations directly tothe specified officer named in the Tender Notice.
In case of urgency, the quotations may be conveyed over the telex/fax to the specified
officer on or before the stipulated date. The same shall be followed by a confirmatory
letter from the party.
In the liberalized economic environment, foreign suppliers are operating through
Indian representative(s) either under joint venture arrangements or on commission
basis.
It will be necessary for the foreign bidder to identify and disclose along with copy of
the agreement, the Indian representative, while responding to the tender. Information
on such arrangement should be submitted to the C&MD. At a later stage, before
entering into the contract, the Indian representative can be allowed with the approval
of C&MD.
Tender conditions for imported items should contain a standard stipulation that tender
should be submitted directly and not through the Indian representative.
Suitable clause should be incorporated to provide in the contract, that in the event of
any breach or default on the part of the supplier to disclose the agency arrangements
in India, there would be a penalty of banning business dealings and also payment of
specified sum.
PROCESS AFTER TENDERING
1. After placing the order, the purchase department or supplier can arrange the
freight forwarder.2. After this role of the purchase department is to oversee the expedition of the
cargo by the freight forwarder.
3. After the delivery of materials by the freight forwarder within the boundaries of
India, the clearing agent submits the following documents for clearance from
the authorities. These include :
a. Bill of Lading.
b. Packing List
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c. Cargo Arrival Notice.
d. Freight Bill.
e. Foreign Purchase Order Copy.
f. Insurance Certificate.
4. After these documents are received clearing agent assesses the Bill of Entry.
5. Finally after all payments have been made and all documents submitted, thecargo is cleared and is transported to the refinery
Vendor management
Vendor Management Committee (VMC) maintains approved vendors list. It includes
the representatives of the Technical, Purchase and Finance department.
Vendor Management Officer (VMO) exclusively handles/coordinates VMC activities.
This officer will report to Head Purchase of respective SBU.
Administration of the Vendor Management System:
1. All vendors will be required to register Online on a web based system.
2. All inputs will also be required to be submitted online. A hard copy print out of
the information entered online in predetermined format will be submitted byvendor to VMO along with necessary registration fee amounting R 5,000.
3. VMO will scrutinize the application, seek additional details if required and put
up the proposal for the consideration of appropriate VMC basis system
generated reports. VMC will approve /reject or seek clarifications which will
again be managed by VMO. Decision taken in respect of approval of
registration or rejection, shall be recorded and will be available in the vendor
database.
4. Updation / revision of any information, vendor profile etc., shall also be doneonline and on a continuous basis. All the data entered shall be available in the
system and can be retrieved with predetermined report formats or query based
information.
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5. Periodical system generated exception reports for location wise pending
applications, new vendors approved; rejected and existing registration cancelled
shall be forwarded to respective CC on quarterly basis.
PROCEDURE OF SCRAP DISPOSAL
DISPOSAL PROCESS - STEPS INVOLVED
1. Identification and Segregation of items for disposal & Preparation of Request
for Disposal (RFD).
2. Location/Department will :
a. Identify and keep items for disposal separately.
b.Prepare list of surplus items in Refinery and take suitable action..
3. Prepare `Request for Disposal' format for sale of items, and get this cleared by
Disposal committee/Team and then forward to Controlling Office/Dept.Head
for approval of RFD.
4. Actual disposal
The respective authorities for opening of will -
a. Invite tenders for disposal.
b. Evaluate tenders received and obtain approval of appropriate approving
authorities.
c. Place sale or disposal order/s on selected party/parties.
d. Communicate same to the concerned location.
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5. Delivery and documentation
Location/Refinery will:
a. Prepare relevant documents such as invoice/debit note, Cash receipt.b. Make delivery of items as specified in Disposal Order/Letter.
GRAPHICAL REPRESENTATION
Month wise Inventory Trend
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Class wise Inventory - Central Storeroom (as of 31-03-2011)
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Recommendations
1. E-Procurement and ERP (J.D.Edwards) system are 2 different platforms. First
tenders are floated in the E-procurement portal. The quotations are received in
E-procurement portal and then the data is fed into the ERP system. This processcauses an increase in the lead time of procurement. Hence an integration of the
two platforms can help to reduce the lead time.
2. Reverse auction is currently used only for service contracts. However this can
also be implemented for supplies in the future as well, thus reducing the cost
further.
3. Currently in HPCL the ratio of rate contracts to one time is of 60:40. By
reducing the number of one time orders and making the ratio of 70:30 the
inventory cost can be reduced further.
4. Currently internet is widely used in most companies .Companies maintainEmail address. This can be used for the purpose of E-mail tendering .This
ultimately reduces the lead time of tendering process as compared to sending it
through the post. Also this can be used for competitive bidding.
5. Inventory turnover Ratio can be increased by analyzing the movement of spares
and maintaining required levels of inventory so as to improve the ratio beyond
1.5 to match Inventory Standards.
6. Feedback from the user about quantity of spares wasted due to obsolescence.
This will help the warehouse department to forecast future requirements and
focus on minimum possible wastage.
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CONCLUSION
Inventories constitute the most significant part of current assets of a large
majority of companies in India.
On an average inventories are approximately 30% of current assets in privatelimited companies in India. It is possible for a company to reduce its level of
inventories to a considerable degree e.g. 10 to 20% without any adverse effect
on production and sales.
The HPCL Mumbai Refinery offers India a change to leap frog from above
depression to area of global competitiveness and prosperity and regain Indias
commercial value. In the light of these facts the warehouse of HPCL-MR is
maintaining inventory of above 35,000 items.
The Warehouse has been done remarkable job so far relating to inventory
control function but with the changing scenarios the importance of inventory
management has acquired enormous dimensions.
Given the fact that inventory management system being followed in the
company has strong structure, it has gained from increased use of automation
and sophisticated techniques.
In near future due to the expansion & other stringent measures of quality
programme like TQM, and ISO the company shall have to adopt latesttechniques of InventoryControl.
Also it worth mentioning the role played by the purchase department.
The Purchase also has embraced the automation era by including in its working
modern ERP system (J D Edwards).
Also it has introduced a modern method of Vendor management. It has begun
introducing the procedure of E-Procurement and Reverse auction show as to
bring a higher level of transparency to the entire procurement process.
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BIBLIOGRAPHY
WEBSITES
1. www.mattscorner.net
2. www.mattscorne.in
3. www.google.com
4. www.wikipedia.com.
5. www.hpcl.co.in.
BOOKS
Production and Operations Management By K.Aswathappa & K.
Shridhar Bhat.
Purchasing and Supply Management by Donald. Wobbler & David Burt