CHAPTER 1.
INTRODUCTION
1
1.1 COMPANY’s PROFILE:
HPCL-Mittal Energy Limited (HMEL) is a joint venture between Hindustan Petroleum
Corporation Limited (HPCL)- a Government of India Enterprise engaged in the
business of oil refining and marketing and Mittal Energy Investment Pte Ltd,
Singapore - a Lakshmi N Mittal Group Company. Both the JV partners hold a stake of
49% each in the company, the rest 2% is held by financial institutions. HMEL is
building a Grassroot oil refinery of 9 MMTPA at Bathinda in Punjab, called Guru
Gobind Singh Refinery Project. The project is expected to be completed in 2011.
The refinery will produce petroleum products complying with Euro IV emission norms
with Captive Power Plant for 165 MW and Crude Oil pipeline from Mundra (Gujarat) to
Bathinda with Single Point Mooring (SPM) and Crude Oil terminal at Mundra.
1.2 GURU GOBIND SINGH REFINERY PROJECT
1.2.1 Project Vision
To build and operate best in class petroleum refinery using state of the art technologies
to ensure protection of the environment, health and safety of the community. The
company will be a model of excellence in fulfilling its social responsibilities, meeting
stakeholder aspirations, caring for its employees and complying with government laws
and regulations.
2
1.2.2 Project Mission
HMEL shall plan, design, construct, commission and operate an energy efficient and
environment friendly Greenfield refinery at Bathinda, Punjab along with associated
infrastructure facilities. The company shall endeavor to achieve excellence in all aspects
of project management while successfully implementing the project within the
scheduled time, budgeted cost and desired quality standards.
1.2.3 Project Details
The Guru Gobind Singh Refinery will be a zero bottoms, energy efficient, environment-
friendly, high distillate yielding complex refinery that will be producing clean fuels and
polypropylene by processing heavy, sour and acidic crudes.As part of this project, the
following are being established:
Grassroot refinery of 9 MMTPA in Bathinda, Punjab.
Cross-country Crude Oil Pipeline (approx. 1014 km) from Mundra to Bathinda
traversing through the states of Gujarat, Rajasthan and Haryana.
Crude receipt facilities - Single Point Mooring ( SPM) buoy capable of handling
Very Large Crude Carriers (VLCC) for crude import located at Mundra, Gujarat,
India.
Crude Oil Terminal (COT) approximately six kms. away from the sea shore at
Mundra, Gujarat.
Captive Power Plant of 165 MW for refinery power and steam requirements.
3
The refinery will be a world class, state of the art refinery incorporating the latest
technologies enabling it to excel the current specifications available in the country. The
refinery configuration has been developed after extensive linear programming, keeping
the domestic and regional requirements in mind, the latest cost effective technologies
available for generating required fuel specifications, and future changes. The present
configuration translates into one of the highest Nelson Indexes* for the refinery amongst
all the refineries in the country.
This refinery is the single largest investment at any location in Punjab and is the first Oil
and Gas industry being set up in Punjab. The Refinery is expected to create a large
number of jobs directly and indirectly in the region, which will lead to industrialization
and development of Punjab.
HPCL-Mittal Pipelines Limited is a wholly owned subsidiary of HPCL-Mittal Energy
Limited. The objective of HPCL-Mittal Pipelines Limited is to set up and operate
business related to crude oil receipt, its storage and cross-country transportation. Mundra
- Bathinda Pipeline Project is implemented by the Company for transporting crude oil
from Mundra Gujarat to HMEL’s Guru Gobind Singh Refinery at Bathinda, Punjab.
The project consists of the following facilities being set up to meet its objective:
Single Point Mooring System (SPM), 10 kms from the shore in the Gulf of
Kutch to unload crude oil from ocean tankers.
4
An offshore / onshore pipeline of approximately 10 kms offshore section and 6
kms onshore section to transfer the crude oil from the SPM to the Crude Oil
Terminal (COT).
A Crude Oil Terminal (COT) approximately 6 kms away from the sea shore, of
over 8,00,000 KL capacity at Mundra in Gujarat, India.
A 1,014 km long cross country pipeline, including one Intermediate Pumping
Station to transfer.crude oil from COT at Mundra to Guru Gobind Singh
Refinery at Bathinda. The pipeline named Mundra–Bathinda Pipeline (MBPL)
route passes through the coastal plains & saline mud flats of Rann of Kutch in
Gujarat, dry cultivation fields & eastern fringe of Thar Desert in Rajasthan and
Ghagghar Flood Plains in Haryana - crossing 24 rivers and 51 canals along the
route up to the refinery premises at Bathinda in Punjab.
An Optical Fibre Cable (OFC) is being laid alongside the pipeline for
telecommunication and data transfer between all the stations along the route of
the pipeline.
As a part of environment protection, an Effluent Treatment Plant shall be provided at
COT for treating all the effluent generated at the dispatch terminal before release.
Moreover, a 30 m wide belt around the COT and up to 25% of land for all intermediate
pumping stations shall be dedicated to developing green belt.
A Disaster Control and Management Plan is being developed to control and manage any
disaster like accidental spillage and its consequences.
5
Fig i) Organisation structure of HMEL
1.3 OBJECTIVES:
This project aims at acquiring a thorough knowledge and understanding of the
Business processess involved in the procurement process at Guru Gobind Singh
Refinery Project,Bathinda.
6
CEO
COOProcure-
ment
Head Of
Project
Head Of Finance & Acc.
Head Of Treasury
Head Of
Market-ing
(V.P.)
Project Control
Requisi-tion
SPMProcess(V.P.)
Engg.(GM) Purchase vendor
IT(CM)
Mainte-nance
Opera-tions(V.P.)
Security
GeneralIT
ServiceSAP
HeadOffice
WorkSite
1.4 SCOPE OF STUDY
This entire project will revolve around the procurement process occurring at Guru
Gobind Singh Refinery Project which is carried out by HMEL. Materials management
assumes responsibility for whatever happens in purchasing, inventory, invoicing or any
other area connected with materials.
The scope of study will include understanding the procurement activities that
takes place in the organization.
The study will cover the steps involved in the procurement of materials in the
GGSR Project of HMEL.
This project will try to study the business process involved in the procurement
process during the constructional phase of Guru Gobind Singh Refinery,
Bathinda by HMEL.
This project will also include small overview of business process involved in the
procurement process during the Operational Phase of Guru Gobing Singh
Refinery, Bathinda.
7
CHAPTER 2:
THEORITICAL
FRAMEWORK AND
REVIEW OF
LITERATURE
8
OVERVIEW OF MATERIALS MANAGEMENT
Fig. ii) Materials Management
2.1. MASTER DATA
The Materials Management functionality includes a number of important master data
files.The Material Master and Vendor Master data files are at the core of
Purchasing,Inventory Management and Invoice Verification.
2.1.1 MATERIAL MASTER
The material master record is the main source of material-specific data in an enterprise.
The material master contains information of all the materials that a company procures,
produces, stores, and sells. It is the company's central source for retrieving material-
9
specific data. This information is stored in individual material master records. The
material master is the central pool of information where material specifications are
entered only once and same item code can be used repetitively as and when required.
The integration of all material data in a single database object eliminates redundant data
storage. Every area, such as Purchasing, Inventory Management, Materials Planning,
and Invoice Verification can use the data stored.
Fig iii) Material Mater Record
The material master is subdivided into information grouped by user departments
(functions). Each user department has a different view of the material master record and
is responsible for maintaining the data to support their function.
You can assign materials with the same characteristics to the same material type.
Material types include raw materials, semi-finished products, and finished products, for
example.
10
2.1.2 VENDOR MASTER
The vendor master contains information of all the vendors that a company has business
relationship for procurement of materials, for providing service, for transportation, for
payments etc. It is the company's central source for retrieving vendor specific data. This
information is stored in individual vendor master record.
The vendor master record contains the following information –
General Data: The data is valid for whole client i.e. in our case HMEL. It
includes the vendor’s address, bank & other details etc.
Accounting data: This is maintained at company level. It comprises data such
as the number of the reconciliation account and payment method.
Purchasing data: This data is maintained for each purchasing organization. It
includes the PO currency, Price basis, Partner data, excise, customs and
various control data.
The vendors can be categorized as: Material Vendors, Service Vendors, Transporters,
Finance/Term Loan vendors, Government statutory bodies, Own Plants and group
companies. These are to be defined as vendors in the system.
11
Fig. iv) Vendor Master Record
2.2 PURCHASING
The purchasing organization is responsible for the enterprise’s purchasing requirements.
You can incorporate Purchasing into the company structure by assigning the purchasing
organization to company codes and plants.
12
The Purchasing Group can be defined as a person or group of people dealing with
certain material or group of materials purchased by through the purchasing organisation.
2.2.1 PURCHASING INFO RECORD
Purchase Info record consists of information specific to a material and a vendor. This
can then be specified by a particular purchasing organization.
The purchasing information record is used in the purchase order where information from
the record is defaulted into the purchase order. Information such as purchasing group,
net price, invoice verification indicators and delivery tolerances all can be entered into
the purchase info record.
There are four categories of purchase info records that can be created. These are:
Standard Info Record: Standard Info Record contains information supplied by
the vendor for a specific material , service or group of materials or services
Pipeline Info Record : Pipeline materials such as electricity, water, oil etc are
supplied by utility vendors and used by customer through pipeline withdrawals.
Pipeline info record contains information for such kind of material/vendor
combination.
Consignment Info Record: When a vendor supplies material to be stored at a
customer’s site for customer withdrawal, the purchasing department can create a
consignment purchasing info record for that material.
Subcontracting Info Record: This type of info record is created when the order
is a subcontracting order.
13
2.2.2 PURCHASE REQUISITION(PR)
The purchase requisition is the procedure by which general users or departments can
request the purchases of goods or services that require processing by the purchasing
department.
Purchase requisitions are internal documents requesting a certain quantity of material or
service on certain date. A purchase requisition is an authorization for a purchasing
department to procure goods or services. It is originated and approved by the department
requiring the goods or services.
It contains a description and quantity of the goods or services to be purchased, a required
delivery date, account number and the amount of money that the purchasing department
is authorized to spend for the goods or services. Often, the names of suggested supply
sources are also included.
A purchase requisition is owned by the originating department and should not be
changed by the purchasing department without obtaining approval from the originating
department. A purchase requisition is not a purchase order and therefore should never be
used to purchase goods or services or used as an authorization to pay an invoice from a
supplier or service provider.
14
Purchase requisitions can be created:
– Manually
– Automatically:
1.Planning Function(MRP,MPS)
2.Production Orders
3. Sales Orders
2.2.3 REQUEST FOR QUOTATION(RFQ)
Once the PR has been received and has been processed by the purchasing
department, there may arise a need wherein the purchasing department offers a
request for quotation (RFQ).An RFQ typically involves more than the price per item.
Information like payment terms, quality level per item or contract length are possible
to be requested during the bidding process.
To receive correct quotes, RFQs often include the specifications of the
items/services to make sure all the suppliers are bidding on the same item/service.
Logically, the more detailed the specifications, the more accurate the quote will be
and comparable to the other suppliers. The suppliers have to return the bidding by a
set date and time to be considered for an award.
An RFQ allows different contractors to provide a quotation, among which the best
will be selected. This need may arise because of a number of reasons as:
a. Material not previously used at the company.
15
b. Material being used but has no particular identified vendor.
c. New vendor required due to termination of contract, i.e. quality issues
d. New vendor required due to government regulations.
e. New vendor due to logistical issues.
2.2.4 CONTRACTS
A contract is an agreement between the vendor and customer for the vendor to
supply material to the customer at an agreed price over a specified period of time.
These contracts can be either based on total quantity or total value.
There are two types of contracts that can be made:
a. Quantity Contract – As the name suggests this contract allows the purchasing
department to agree with the vendor on a set quantity of material or services.
b. Value Contract --- A value contract allows a purchasing department to cap the
spending with one particular vendor. The value contract is not concerned with the
quantity of material supplied by the vendor but by the total spending with the vendor
for the material.
2.2.5 PURCHASE ORDER(PO)
A purchase order is a commercial document issued by a purchasing department
(buyer) to a vendor (seller), indicating the materials, quantities and negotiated prices
for materials or services that the seller will provide to the buyer.
Sending a PO to a supplier constitutes a legal offer to buy products or services.
Acceptance of a PO by a seller usually forms a once-off contract between the buyer
16
and seller so no contract exists until the PO is accepted. POs usually specify terms of
payment, incoterms for liability and freight responsibility, and required delivery
date.
Purchase order usually contains the following:
• Purchase order number
• Date of Purchase Order
• Billing Address of Buyer
• Special Terms or instructions
• List of Items with quantities
• Negotiated price of each item
2.3. INVENTORY MANAGEMENT
The Inventory Management process within SAP corresponds to movements inside the
plant that can create a change in stock levels within the storage location designated to
that plant. The movement of stock is either inbound from a vendor, outbound to a
customer, a stock transfer between plants, or an internal transfer within a plant.
For every goods movement two types of documents are created in SAP:
1. Material Document
2. Accounting Document
The accounting document describes the financial aspects of goods movement and is
only relevant is material is valuated. Various functions of inventory management are:
To store just enough quantity in view of inventory carrying cost.
To keep safety stock to avoid shortage
17
Numbers of orders should be such that ordering cost also is reduced.
Extra care to be taken in ordering and storing of perishable goods
Understand the seasonable availability of some items and their pricing
and arrange right quantity at right price and of right quality.
Know the trend of ups and down in production items, quantity and
accordingly adjust the purchases
Assembly needs, variety/ various items, see that purchase and availability
in ‘Sets’ required
Keep minimum stock of high value items and monitor their price trend.
2.3.1 GOODS RECEIPT
Goods receipt process allows the receipt of material from a vendor or from in-house
production process. A goods receipt is an increase in stock that is triggered because of:
• Receipt from a production order.
• Receipt from a purchase order.
• Initial Entry of inventory.
You can post goods receipts from vendors to quality inspection stock for the
following reasons:
• If the material always has to undergo quality inspection before it is used. In this
case, the employee responsible for the purchasing data in the material master
record sets the quality inspection indicator in the material master record. When
you order the material, the indicator is copied to the purchase order.
18
• If the material is received from a particular vendor and has to undergo quality
inspection first. For example, you must always test the quality of goods if they
have been procured from a new vendor.
• If you decide at the time of goods receipt that the material has to undergo quality
inspection, for example, because you established that the packaging is damaged
and suspect that the goods were also damaged during transportation. You then set
the quality inspection indicator in the goods receipt item.
19
Fig. v) Goods Receipts
2.3.2 GOODS ISSUE
Goods Issue is a reduction of stock triggered by one of the following:
• Issue with respect to reservation
• Return of material.
• Material Scrapping
These are the movement types that identify the various goods issue.
2.3.3 STOCK TRANSFER
A stock transfer can occur physically , for example by moving material from one storage
location to another, or logically , moving stock from quality inspection status to
unrestricted. Stock transfer normally refers to a physical move , while transfer posting
usually describes the logical move.
Stock transfer occurs in three distinct ways:
• Storage location to storage location
• Plant to Plant
• Company Code to Company Code
20
Fig. vi) Stock Transfer
2.3.4 PHYSICAL INVENTORY
Regular physical inventories in the plant,combined with improvements in inventory
accuracy are important goals for companies. Physical inventories can be customized to
produce faster and more accurate results,lowering inventory cost and improving
customer service levels.
Physical inventory can be performed on stock that is held in unrestricted use , quality
inspection or on blocked status. Physical inventory can also be performed on the
company’s own stock and special stocks such as returnable packaging and consignment
stock at customer locations.
21
2.4.INVOICE VERIFICATION
2.4.1 INVENTORY VALUATION:
The SAP system allows you to valuate stocks of a material either together or separately,
that is, according to different valuation criteria. Split valuation is necessary if, for
example:
· Stock from in-house production has a different valuation price than externally procured
stock.
· Stock obtained from one manufacturer is valuated at a different price than stock
obtained from another manufacturer.
· Different batch stocks of a material have different valuation prices.
The way the stocks of a material are valuated depends on how you define the following:
· Valuation category
(This defines whether the stocks are valuated jointly or separately. If stocks are to be
managed separately, it also specifies the criteria used to valuate the stocks, that is,
whether they are valuated by origin, in-house production/external procurement, or
individual batches.).
· Valuation type
(This is a further subdivision of the valuation category. For example, if the valuation
category is origin, a company may want to define the valuation types stock from Los
Angeles and stock from Detroit.)
This data is stored in the material master record. In SAP there are two ways of valuating
stock:
22
i. Joint Valuation
(If you want to valuate all stocks of a material at the same price, you specify neither a
valuation category nor a valuation type.)
ii. Split Valuation
If you want to valuate stocks of a material separately, you must create a material master
record with the appropriate valuation category. This record is called the valuation header
record. Each material always has only one such record for each company code or plant
(depending on whether the material is valuated at company code level or plant level).
Once you have specified the valuation category, you can create a material master record
for each quantity of the material you want to valuate separately, with the appropriate
valuation type and accounting data.
2.4.2 Logistics \ Vendor Invoice Verification
Invoice Verification is part of the accounts-payment process in which the vendor is paid
for materials or services that they have provided to the customer. This verification is
important as it ensures that the quantities and the pricing are all correct and neither party
has made an error.
23
Procurement is the acquisition of appropriate goods and/or services at the best possible
total cost of ownership to meet the needs of the purchaser in terms of quality and
quantity,time&location.
Fig. vii) Procurement Process
24
CHAPTER 3:
BUSINESS
PROCESSES
25
BUSINESS PROCESS OF PROCUREMENT IN THE
CONSTRUCTIONAL PHASE OF REFINERY
Engineers India Limited (EIL) is managing the engineering, procurement and
construction for the refinery project. The items involved in Procurement process are:
1. BOUGHT OUT ITEMS: HMEL has classified all items as Bought Out Items which
consists of both Bulk and Tagged Items.
Tagged items are those that are purchased specifically for a particular Unit. Eg: CDU or
VDU. These materials are stock able and when ordered are assigned to the unit and there
consumption is entirely within the same unit for which they have been ordered. Tagged
items are mainly equipments such as columns, vessels, pumps etc and instruments such
control valves, safety valves, transmitters etc and electrical panels.
Bulk items items which are procured in bulk feeding to multiple units and these too are
stock able. Bulk items are pipes, fittings, flanges, valves, electrical & instrumentation
cables etc.
2. CONSUMABLES (Or OFFICE REQUIREMENTS): Office Requirements are
those items that are required on a day to day basis for the working of the organization.
These items can be stock able or non stock able, Eg: stationery etc.
26
3.1 CSBP(CURRENT STATE BUSINESS PROCESS) FOR
PURCHASING INVOLVING EIL
All the Brought-out items,i.e. tagged and non-tagged items are purchased by EIL for
construction of refinery.
Fig. viii) Purchasing Process of Bought-out items
Inputs Responsibilty Type of Input Category of Input Mode of
27
(Data/
Activity /
Process)
(Vital / Essential /
Desirable)
Information
1.Material Requisition EIL Activity Essential Soft copy/
Physical
Document
2.Request for Quotation EIL Activity Essential Physical
Document
3.Quotation Comparison
/Negotiations
EIL/HMEL Activity Essential Physical
Document
4.Purchase Order HMEL Activity Essential Physical
Document
Table i) Activities involved in procurement of bought-out items
STEPS IN PROCUREMENT PROCESS
1. RAISING THE MATERIAL REQUISITION :
Material Requisition(MR) is raised for availing the supplies of Tagged and bulk items by
EIL. For Tagged items only one time MR is raised and for Bulk items MR is raised
several times as the engineering progresses.
28
To facilitate the availability of materials in early phase in order to start the construction
of refinery is based on piping and instrumentation diagram, plot plan and equipment
layout. Later on when drawings are prepared and 3D modelling is done on software(PDS
package) Material Take Off(MTO) System is generated through computer automatically.
Bulk materials procurement is done in several phases for continuous feeding of material
to site for construction.
MTO system is responsible for raising the MR for procurement of bulk items.For GGSR
refinery 7 MTO have been prepared till date.
2. SUBMISSION OF APPROVED VENDOR LIST TO HMEL:
A Vendor List is maintained by EIL which contains the names of approved vendors. EIL
submits the Approved Vendor List(AVL) to HMEL for approval. HMEL team wherein
does the required modification of the vendor list if required. Once list is finalised,
modified list is transmitted back to EIL.
3. RFQ(REQUEST FOR QUOTATIONS) INVITATION
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
All the vendors should reply back their quotations within the stipulated due date. RFQ
contains the details of requirements of the company. Details includes information like
no. of units needed, description of materials required, etc. RFQ also mention the Terms
and Conditions of the order which a vendor should agree with.
29
Interested Approved Vendor replies back to EIL by giving ACKNOWLEDEGEMENT
CUM CONSENT LETTER.
EIL might go for some additions in their requirements. EIL can issue ADDENDUM, if
required, stating the increase in number of units required or any variation in
specification required.EIL can increase the due date for submission of Quotations
accordingly.
4. QUOTATION SUBMISSION BY VENDORS
Interested Approved Vendor should reply back to EIL with their quotations in the form
of PRICED BIDS and UNPRICED BIDS in a format specified by EIL in two separate
sealed packets.
UNPRICED BIDS contains the technical details of material without any mentioning of
price.
PRICED BIDS contains the details of proposed materials along with their unit price and
total price.
Earnest Money Deposit(EMD) is a deposit in monetary terms taken by EIL from
interested vendors as part of security in case of large orders. EMD is non-refundable and
retained by the company in case the selected vendor backs out later after the contract
30
signing. After raising of LOA to the successful vendor, EMD deposits of all
unsuccessful vendors are returned back to them.
In case of any variation in the technical specification of available material with vendor
against the proposed material then vendor should clearly specify it to EIL.
5. TECHNICAL EVALUATION OF VENDOR(IF REQUIRED)
The department which has raised the Material Requisition is responsible for technical
evaluation of vendor. The department checks the approved vendors to determine
whether they are technically fit to supply the proposed material or not.
In case of multiple departments involvement, vendor is technically approved by each
department involved.
UNPRICED Bids are given to concerned department to analyse the technical
acceptability of vendor. Only the bids of technically qualified vendors are allowed go for
commercial evaluation.
6. PRICE BID OPENING AND COMMERCIAL EVALUATION OF VENDORS
All the technically qualified vendor’s bids go for commercial evaluation. Commercial
evaluation is done by Contracts & Procurement Department of EIL. commercial bids
will be opened by the authorized persons (consisting EIL & HMEL) and the quotations
will be maintained for each vendor.
31
A price comparative statement is prepared for vendors and analysed by EIL. Price
comparison process will involve the comparison of both cost price and operational cost
of material for each vendor.
Vendors are arranged in the category of L1, L2, L3 and so on depending upon the prices
in their respective quotations. The lowest price quoting vendor is given category L1, the
next higher price quoting vendor is given category L2, and so on. L1 category vendors
are given preference over higher category vendors, i.e. , L2 and L3.
7. DRAFT LOA(LETTER OF AWARD) RAISING :
A price comparative statement is prepared by EIL and recommendation report is sent to
HMEL along with Draft LOA (Letter of Award) for the recommended vendors as per
the original quote.EIL recommendation report might contain suggestion for multiple
vendors.
8. NEGOTIATIONS AND FINAL LOA ISSUING:
Recommended vendors are invited by HMEL for further negotiation in prices. HMEL
team shall negotiate the prices further with the vendors depending upon certain terms &
conditions.
32
Final comparison is done by HMEL team after the negotiations. As per DOP(Delegation
of Power), Final LOA is raised for selected vendor. The copy of the same is forwarded
to EIL.
Letter Of Award is authorisation for a particular vendor to start with their work for
making arrangements for supplies. LOA gives the details about the proposed materials.
Detailed Purchase Order is followed by LOA later contain further terms & conditions.
LOA should be accepted and acknowledged with proper vendor signature and stamp.
Acknowledged LOA should be returned back to the company.
9. PURCHASE ORDER(PO) RELEASING PROCESS:
A draft PO is raised by EIL based on which a final PO is prepared by the HMEL team
and issued to the vendor. PO contains the complete details about the expected quantity
and final prices agreed upon by both vendor and HMEL during final negotiation
sessions.
PO is released by HMEL according to releasing strategy and forwarded to vendor. The
copy of final PO is forwarded to EIL.
Once the PO cycle is over a PR containing the entire details of the materials and quantity
etc is prepared and issued by EIL to the vendor with a copy to HMEL.
33
10. MANUFACTURING AND DELIVERY OF MATERIAL BY VENDOR
Vendor starts the process of manufacturing the materials according to the specifications
mentioned in PO/PR. There is a frequent quality check visits done by EIL team during
the process of manufacturing of materials. Quality Assurance team of EIL checks that
the material conforms to the specifications and quality requirements of the company.
After quality checking process is over, a Certificate is issued to the vendor for quality
assurance of material to be supplied for work site.
Vendor makes the delivery of materials according to the terms & conditions as per
purchase order.
11. GOODS RECEIVING
Currently the EIL warehouse team manages the project based inventory. The legacy
system used by them is WAMS(Warehouse Management System) The warehouse
team receives the DAV (Dispatch advise voucher) from the vendor which is an
intimation that the vendor has dispatched the materials after the clearance of quality
inspection at the source. As per the DAV (having a unique no.) the EIL team
maintains their dispatch advice log (DAL) register.
The EIL team prepares DRR (Daily Receipt Report), once the goods are delivered to
the premises of HMEL & are pending for physical verification.DRR report is sent
daily to HMEL & Project site as first hand report of the availability of the goods. DRR
report is linked to DAL report with reference to the DAV Unique number.DRR report
34
provides reference of material quantity received.
The MRR (Material Receipt Report), is prepared by EIL only after physical
verification of material against DRR. After MRR, material is available in the stock
register for issuing.
All the physical rejection, shortage, etc is maintained through OSRD (Over short
reject & damaged) report . Purchase action is initiated for OSRD items and insurance
claim is made.
12. INVOICING AND PAYMENTS
Payment terms are mentioned in PR/PO. For simple items like bulk material no
detailed bill is required as billing terms mentioned in PO\PR is sufficient. Further
detailed billing schedule is prepared for complex materials like major equipments.
Detailed billing schedule is prepared by vendor and submitted to EIL for approval.
Billing schedule consists of following heads for which billing break-up is made for
complex materials:
1.Process design
2.Detailed engineering
3.Ordering
4.Manufacturing & delivery
35
5. Construction
As work progresses vendors & contractors submits the monthly invoices to EIL for
verification and forwarded to HMEL for payment. Vendors and contractors are given
advanced payments for initiating the production process against the bank guarantee.
Payments to vendor and contractor is done by two methods:
1.Direct payment: Money is transferred to the vendor and contractor directly in their
name.
2. Payments through banks: Upon the dispatch of material
i) Original invoice is submitted to Vendor’s bank by the vendor.
ii) Vendor’s bank submits original invoice to HMEL’s bank.
iii) HMEL makes the payments to its bank according to the invoice given by the
vendor.
iv) HMEL’s bank makes the payment to the vendor’s bank.
v) Vendor can collect the payments from his bank account.
After making the payments, Proof of payments made is generated. HMEL submits this
proof of payment to the transporter upon the delivery of materials.
36
3.2. CSBP (CURRENT STATE BUSINESS PROCESS) FOR
PROCUREMENT INVOLVING HMEL ONLY(NON-EIL).
HMEL carries out the procurement process for consumables items only. Consumables
are those items that are required on a day to day basis for the working of the
organization. These items can be stock able or non stock able, Eg: Office stationery, etc.
Inputs Responsibilty Type of Input
(Data/
Activity /
Process)
Category of Input
(Vital / Essential /
Desirable)
Mode of
Information
1.Material Requisition HMEL Activity Essential Soft copy/
Physical
Document
2.Request for Quotation HMEL Activity Essential Physical
Document
3.Quotation Comparison
/Negotiations
HMEL Activity Essential Physical
Document
4.Purchase Order HMEL Activity Essential Physical
Document
Table ii) Various activities involved in procurement of consumables
37
Fig. ix) Procurement process of consumables items
38
STEPS FOR PROCUREMENT OF CONSUMABLES
1. LOCAL PURCHASING REQUISITION (LPR) RAISING:
Local Purchasing Requisition is raised by the concerned department upon the realisation
of need. Local Purchase Requisition goes to the Procurement department of HMEL.
LPR contains the details of proposed items, description and quantity required. It might
contain the information about the recommended vendors.
2. APPROVED VENDOR LIST :
HMEL maintains the approved vendor list for the process of selective bidding. HMEL
procurement department is responsible for maintaining the Approved Vendor List.
All interested vendors should satisfy all the norms, as stated by procurement department,
in order to get themselves registered in approved vendor list.
Approved Vendor List might contain single vendor or multiple vendor names for a
particular item.
3. REQUEST FOR QUOTATION RAISING:
Based on LPR raised, Procurement department of HMEL will identify the approved
vendors from Approved Vendor List. RFQ is floated to all the approved vendors
requesting the quotations from them. All the quotations received after the due date is
considered as invalid.
39
RFQ contains the details of requirements of the company. Details includes information
like no. of units needed, description of materials required, etc. RFQ also mention the
Terms and Conditions of the order which a vendor should agree with.
Interested Vendor can reply back to HMEL by giving ACKNOWLEDEGEMENT CUM
CONSENT LETTER.
HMEL might go for some additions in their requirements. HMEL can issue
ADDENDUM, if required, stating the increase in number of units required or any
variation in specification required. HMEL would increase the due date for submission of
quotations accordingly.
4. QUOTATION SUBMISSION BY VENDORS
Interested Approved Vendors should reply back to HMEL with their quotations in the
form of PRICED BIDS and UNPRICED BIDS in a format specified by HMEL in two
separate sealed envelope.
UNPRICED BIDS contains the technical details of material without any mentioning of
price.
PRICED BIDS contains the details of proposed materials along with their unit price and
total price.
40
Earnest Money Deposit(EMD) is a deposit in monetary terms taken by HMEL from
interested vendors as part of security in case of large orders. EMD is non-refundable and
retained by the company in case the selected vendor backs out later after the contract
signing. After raising of LOA to the successful vendor, EMD deposits of all
unsuccessful vendors are returned back to them.
In case of any variation in the technical specification of available material with vendor
against the proposed material then vendor should clearly specify it to HMEL.
5. TECHNICAL EVALUATION OF VENDOR (IF REQUIRED)
The department which has raised the Local Purchase Requisition is responsible for
technical evaluation of vendor. The department checks the approved vendors to
determine whether they are technically fit to supply the proposed material or not.
UNPRICED Bids are given to concerned department to analyse the technical feasibility
of project.
Only the bids of technically qualified vendors are allowed go for commercial evaluation.
6. PRICE BID OPENING AND COMMERCIAL EVALUATION OF VENDORS
All the technically qualified vendor’s bids go for commercial evaluation. Commercial
evaluation is done by Procurement Department of HMEL. commercial bids will be
opened by the authorized persons and the quotations will be maintained for each vendor.
41
PRICED Bids are analysed by the Procurement Department of HMEL for commercial
feasibility. A price comparative statement is prepared for vendors and analysed by
HMEL team.
Vendors are arranged in the category of L1,L2,L3 and so on depending upon the prices
in their respective quotations. The lowest price quoting vendor is given category L1, the
next higher price quoting vendor is given category L2, and so on. L1 category vendors
are usually given preference over higher category vendors, i.e. , L2 and L3.
7. NEGOTIATIONS WITH SELECTED APPROVED VENDORS
Selected approved vendors are invited by HMEL team for final negotiations in price.
HMEL team shall negotiate the prices further with the vendors depending upon certain
terms & conditions.
Final comparison is done by HMEL team after the negotiations. After comparison
process , one vendor is selected for giving the supplies of items.
8. RAISING OF LETTER OF AWARD(LOA)
As per DOP(Delegation of Power), Final LOA is raised for selected vendor. Letter Of
Award is authorisation for a particular vendor to start with their work for making
arrangements for supplies. LOA gives the details about the proposed materials.
Detailed Purchase Order is followed by LOA later contain further terms & conditions.
42
LOA should be accepted and acknowledged with proper vendor signature and stamp.
Acknowledged LOA should be returned back to the HMEL.
9. ISSUE OF PURCHASE ORDER (PO):
After the selection of vendor, Purchase order is prepared and given to procurement
committee for approval. After the approval of PO, it is forwarded to vendor. Upon the
reception of PO, vendor can start with the process of making the material available.
10. MANUFACTURING AND DELIVERY OF MATERIAL BY VENDOR
Vendor starts the process of manufacturing the materials according to the specifications
mentioned in PO. There is a frequent quality check visits done by HMEL team during
the process of manufacturing of materials. Quality Assurance team of HMEL checks that
the material conforms to the specifications and quality requirements of the company.
After quality checking process is over, a Certificate of quality assurance is issued to the
vendor.
Vendor makes the delivery of materials according to the terms & conditions agreed upon
by both the parties.
11. GOODS RECEIVING
Good Received Note (GRN) is maintained by HMEL upon the receiving of material.
Service Entry Sheet (SES) is maintained by HMEL upon availing the services from
the vendor.
43
12. INVOICING AND PAYMENTS
Payment terms are mentioned in PO. For simple items like stationary items no detailed
bill is required as billing terms mentioned in PO is sufficient.
As work progresses vendors & contractors submits the monthly invoices to EIL for
verification and forwarded to HMEL for payment.
Payments to vendor and contractor is done by two methods:
1.Direct payment: Money is transferred to the vendor and contractor directly in their
name.
2. Payments through banks: Upon the dispatch of material
i) Original invoice is submitted to Vendor’s bank by the vendor.
ii) Vendor’s bank submits original invoice to HMEL’s bank.
iii) HMEL makes the payments to its bank according to the invoice given by the
vendor.
iv) HMEL’s bank makes the payment to the vendor’s bank.
v) Vendor can collect the payments from his bank account.
After making the payments, Proof of payments made is generated. HMEL submits this
proof of payment to the transporter upon the delivery of materials.
44
3.3 FUTURE STATE BUSINESS PROCESS (FSBP) FOR
PROCUREMENT PROCESS INVOVING HMEL(NON-EIL).
Future State Business Process(FSBP) includes the business processes after the
implementation of SAP ERP solution at HMEL. All the consumable goods like
stationary and other general office requirements are procured by HMEL directly.
Purchase Requisition (PR) would be raised by the user. Based on the requisition RFQs
would be invited from the identified vendors. On receiving the quotations the price
would be updated in the system and quotation comparison would be carried out.
Negotiations would be carried out by the HMEL team with the shortlisted vendor if
required. LOA (contract) would be prepared and released after approval based on the
release strategy.
A PO would be prepared with reference to the LOA or RFQ / Quotation and would be
released. In case of procurement of services, Service Purchase Orders shall be placed
containing Service Description / Specification, Service duration, quantum of service,
Terms and conditions etc. No Service Purchase order shall be made without reference to
quotation/LOA.
Source List providing the details of material and vendor combination shall be
maintained in the SAP system. If there is a single source or a source that is flagged as a
45
preferred vendor then the system will offer this vendor as the determined source.
However if there are a number of vendors on the source list that are valid by date
selection, then the system will offer the selection to the purchaser. A vendor can then be
selected from the list.
PURCHASE REQUISITION RELEASE PROCESS
Fig. x) Purchase Requisition release process(Post SAP)
46
LOA(LETTER OF AWARD) RELEASE PROCESS
Fig. xi) LOA Release Process (Post SAP)
47
PURCHASE ORDER(PO) RELEASE PROCESS
Fig. xii) Procurement Process of HMEL Procured items(Post SAP)
48
Goods receipt would be done in the system once they are received in the warehouse.
Service Entry Sheet would be created by the user on execution of services.
The duly authorized hard copy of vendor Invoice shall be forwarded to Finance
department of HMEL and LIV shall be posted in the SAP system by Finance
department. Unplanned delivery costs if any would be posted in a separate line item and
the cost of the same would be captured in a particular G/L account.
Fig. xiii) Invoicing (Post SAP)
49
Step # Activity Responsibility
/ Authorization
Tcode Remarks
Procurement Cycle
1 Create Purchase Requisition All users ME51N Create PR with all details
(quantity, specification,
required date etc) for all the
materials required along with
suggested Vendors, if
applicable, and estimated
value. Account assignment for
services would be “K” and
item category would be “D”.
For materials no particular
account assignment or item
category is required.
2 Change Purchase Requisition All users ME52N Change PR (addition/deletion
of item, change of quantity,
specification, required date,
etc) as required.
3 Display Purchase Requisition All users ME53N Display PR
50
4 Release Purchase Requisition Identified
Group
ME54N Based on the release procedure
defined the PR is released.
5 Create RFQ Purchase
Officer
ME41 Create RFQ with reference to
PR. Put in all RFQs under a
single collective number.
Individual RFQ printout shall
be sent to all the recommended
vendors.
6 Change RFQ Purchase
Officer
ME42 Change RFQ (addition/deletion
of item, change of quantity,
specification, required date) as
required.
7 Print RFQ Purchase
Officer
ME9A Print RFQ and send to the
desired vendors.
8 Price Updation in Quotation Purchase
Officer
ME47 On receiving the quotations
back from vendors price
updation is carried out in SAP
9 Comparing of Quotations in
SAP
Purchase
Officer
ME49 Compare quotations based on:
a. Mean value Quotation
51
b. Minimum value
Quotation
10 Create LOA Purchase
Officer
ME31K SAP Contract would be used as
an LOA. Account assignment
for services would be “K” and
item category would be “D”.
For materials no particular
account assignment or item
category is required.
11 Change LOA Purchase
Officer
ME32K If required changes would be
made in the document in case
of value change, the document
gets de released.
12 Display LOA Purchase
Officer
ME33K LOA can be displayed.
13 Release LOA Identified
Release
Group
ME35K
Based on the release strategy
identified the LOA is released
for sending it over to the
vendor.
14 Print / Reprint Purchase
Officer
ME9K
Print the LOA & send to the
vendor. LOA can be printed
only if it is in release status. In
52
case, reprint is required, fresh
message needs to be generated
in the system.
15 Create Purchase Order Purchase
Officer
ME21N
Create Purchase Order with
reference to the quotation,
LOA etc. – Detail purchase
order with all relevant details,
terms and conditions, pricing
elements etc.
16 Change Purchase Order Purchase
Officer
ME22N Change item details, as
required
17 Release Purchase Order Purchase
Officer
ME29N Release of Purchase Order as
a document. Once PO has
been released, no changes
shall be permitted in the
document unless release is
cancelled.
53
18 Print/Reprint Purchase Order Purchase
Officer
ME9F Print the PO & send to the vendor.
PO can be printed only if it is in
release status. In case, reprint is
required, fresh message needs to be
generated in the system.
19 Goods Receipts Warehouse
Officer
MIGO Goods receipt would be carried
out by the warehouse person
for the amount of quantity
received. Part 1 entries would
be updated at this point of time
in the RG23 registers.
20 Logistics Invoice Verification Finance
Dept.
MIRO LIV would be done with
reference to the goods receipt
done
Table iii) Activities of procurement process of consumables(Post SAP)
3.4 FUTURE STATE BUSINESS PROCESS(FSBP) FOR
PROCUREMENT PROCESS INVOVLING EIL
54
All Bought Out Items e.g. Major Equipments / Materials (stock & non-stock), Spares,
Process related items etc for Refinery shall be procured in the same way as being
followed today.
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
Technical evaluation shall be done outside SAP and based on the approval for opening
commercial bids of only technically qualified vendors, commercial bids shall be opened
by the authorized persons (consisting EIL & HMEL) and the quotations shall be
maintained in the system for each vendor.
Once the final vendor has been identified LOA (SAP Contract) would be prepared in
SAP and would be released according to the approval strategy agreed upon. A print out
of the LOA would be taken and issued to the vendor. A draft PO would be raised by the
EIL team outside SAP based on which a final PO would be prepared by the HMEL team
in SAP with reference to the LOA. This PO after going through a defined release
procedure would be issued to the vendor.
All tagged and non tagged item purchases would be under Project (WBS Element) as
capital procurement and shall be capitalized progressively. The account assignment
category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be
55
stored as the project stock.No purchase orders shall be made without reference to
quotation or LOA.
Source List providing the details of material and vendor combination shall be
maintained in the SAP system. If there is a single source or a source that is flagged as a
preferred vendor then the system will offer this vendor as the determined source.
However if there are a number of vendors on the source list that are valid by date
selection, then the system will offer the selection to the purchaser. A vendor can then be
selected from the list.
All materials against purchase orders shall be received & posted into the system via an
interface between SAP and WAMS (Warehouse Management System) of EIL. Material
rejection and damage would be handled by the QM module. In case of Tagged
equipment, the GR for the equipment will not be entered till the entire equipment is
received.
The duly authorized hard copy of vendor Invoice shall be forwarded to Finance
department of HMEL and LIV shall be posted in the SAP system by Finance
department. Unplanned delivery costs if any would be posted in a separate line item and
the cost of the same would be captured in a particular G/L account.
Step #
Activity Responsibility / Authorization
Tcode Remarks
56
1 Create LOA Purchase Officer
ME31K SAP Contract would be used as an LOA. The account assignment category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be stored as the project stock. The item category would remain blank or ‘B’ in this case.
2 Change LOA Purchase Officer
ME32K If required changes would be made in the document in case of value change, the document gets dereleased.
3 Display LOA Purchase Officer
ME33K LOA can be displayed.
4 Release LOA IdentifiedRelease Group
ME35KBased on the release strategy identified the LOA is released for sending it over to the vendor.
5 Print / Reprint Purchase Officer
ME9KPrint the LOA & send to the vendor. LOA can be printed only if it is in release status. In case, reprint is required, fresh message needs to be generated in the system.
6 Create Purchase Order Purchase Officer
ME21N Create Purchase Order with reference to the quotation, LOA etc. – Detail purchase order with all relevant details, terms and conditions, pricing elements etc. The account assignment category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be stored as the project stock. The item category would remain blank
57
or ‘B’ in this case.
7 Change Purchase Order Purchase Officer
ME22N Change item details, as required
8 Release Purchase Order Purchase Officer
ME29N Release of Purchase Order as a document. Once PO has been released, no changes shall be permitted in the document unless release is cancelled.
9 Print/Reprint Purchase Order Purchase Officer
ME9F Print the PO & send to the vendor. PO can be printed only if it is in release status. In case, reprint is required, fresh message needs to be generated in the system.
10
11
Goods Receipts
Logistics Invoice Verification
Warehouse Officer
Finance Dept. MIRO
Goods Receipt would be done via the interface between SAP and WAMS of EIL. Part 1 entries of RG 23 register get updated during this process.
LIV would be done with reference to the goods receipt done
Table iv) Activities involved in procurement process of bought-out items(Post SAP)
3.5 BUSINESS PROCESS DESIGN FOR PROCUREMENT
PROCESS FOR OPERATIONAL PHASE OF REFINERY
58
59
60
Fig. xiv) Procurement Process for operational phase of refinery
61
CHAPTER 4:
DATA
COLLECTION
62
4.1 PRIMARY SOURCES
The primary sources of data for this project are
Supervisor’s instructions and explanations.
Business process specifications from HMEL core project team and Business
heads.
Business process listings and specifications by Trusted Advisors of SAP India
hired by HMEL.
4.2 SECONDARY SOURCES
The secondary sources of data are
Business Blueprints of various business processes of Materials Management used
for Phase-I(Constructional phase) of GGSR, Bathinda.
Detailed Powerpoint presentations prepared by Wipro Technologies while
implementing Phase-I SAP implementation of GGSR, as part of their
documentation process.
Detailed flow charts prepared by Wipro Technologies giving the complete
overview of business process flows.
CSBP(Current State Business Process) documents and FSBP(Future State
Business Process) ducuments.
Documentation regarding company’s general terms & conditions.
63
4.3 DATA COLLECTION ACTIVITIES AND VARIOUS
DOCUMENTS GENERATED DURING PROCUREMENT PROCESS
Various documents, containing paramount data, are produced during the procurement
process. These are as follows:
1. COPY OF APPROVAL OF APPROVED VENDOR LIST:
EIL&HMEL has maintained the list of approved vendors for procurement of all brought-
out items(Tagged and non-tagged) items i.e., major Equipments / Materials (stock &
non-stock), Spares, Process related items etc for Refinery.
All the vendors interested to be included in Approved Vendor List are required to apply
to the company according to standard company procedures by submitting all the pre –
requisites documents.Company’s inspection team carries out two stage process to
approve a vendor. The stages of vendor approval are as follows:
1. Inspection team scrutinises and evaluates the documents submitted by vendors for
their validity.
2. After documents inspection, Inspection team visit the facility of vendor to evaluate the
vendor’s resources and ability to produce the required items.
64
Vendors clearing above two stages are included in Approved Vendor List.Approved
Vendor List consists of names of trusted vendors. Approved Vendor List contains the
name of both domestic and foreign vendors.
Limited Bidding process is carried out in the organisation. Only the Approved Vendors
are invited to give their bids. No press advertisement is released requesting RFQ.
Fig xv) Approved Vendor List
65
2. COPY OF MATERIAL REQUISITION ISSUED/APPROVED SAP PR:
Material Requisition are raised by the concerned department internally in the
organisation. Business users can initiate the Material Requisition upon their
requirements.
SAP PR contains PR No. which is unique for every PR generated. It contains the details
of goods/services required like Item code, Material code, Description, Quantity,
Estimated value, technical requirements etc.
EIL is responsible for generating the Material Requisition for procurement of Bought-
out items used during the constructional phase of refinery. HMEL departments would
generate Material Requisition for consumables or general office requirements. HMEL
uses approved SAP PR process for generating valid Materials Requisitions.
PR raised by the user contains the appropriate justification of raising the PR. Notes for
vendor is also there which makes vendor aware of company’s general terms & condition
of procurement, consequences of delay of services, etc.
PR contains the authorised signature of Initiator and approving authority. PR also
consists of Terms and Conditions for Delivery.PR also contains the list of recommended
vendors by initiator to help the procurement department in vendor selection process.
66
3. RFQ ISSUED
After the creation of approved Materials Requisition, next step is to generate Request
For Quotation to invite the vendors for bidding process.
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
RFQ contains the unique RFQ No. along with RFQ generation date and Quotation due
date.RFQ gives the details of term and conditions of bidding process by vendors.
Further RFQ contains the details about the item to be procured along with INCOTERMS
and PAYMENT TERMS involved. RFQ also gives the details about the expected
delivery date.
In case of monopoly or few vendors, if the vendor is unable to provide the exact
specification material/service, it can forward its proposal for other alternatives.
Company ,if wants, can negotiate with the vendor
4. ACKNOWLEDGEMENT CUM CONSENT LETTER OF PARTIES
If a vendor is capable of providing all the materials/services and ready to comply with
company’s terms and conditions then it sends an acknowledgement cum consent letter to
the company. Interested vendor responds to the RFQ invitation by giving the letter of
67
acknowledgement. The acknowledgement letter contains the consent of the vendors
interested to do business with the organisation.
If no Acknowledgement letter is received then vendor is considered as Not interested.
Acknowledgement Cum Consent Letter is maintained by the Procurement department of
the company to carry out further activities related to procurement.
5. ADDENDUM(IF ANY)
If the requirement of the material/services changes like additional units of materials are
needed or if there is a change in the specification of materials/services, then all the
concerned vendors are informed about the addendum in order.
Company may provide extension in due date depending upon necessity. Vendors can
work upon the new quotation incorporating the Addendum within the extended due date.
7. UNPRICED/PRICED BID OPENING STATEMENT
Vendors provides their priced and unpriced bids to the company in a sealed envelope in
the required format given by the company. Vendors might go with slight variation in the
prescribed format depending upon the specifications of vendor. Vendor must intimate
the slight variation in prescribed format to the company and get the consent of the
company.
68
UNPRICED bids contains the technical details of materials/services needed to be
procured without any details about the price. The unpriced bid contains details about the
actual quantity and quality of materials/services against the proposed one.
Fig. xvi) Unpriced Bid Format
The department which has raised the Material requisition is responsible for analysis of
Unpriced bid to determine whether vendor is satisfying all the requisites of procurement
of proposed material.
PRICED BIDS contains the details of unit price and total price of each item to be
procured. Total price is determined my multiplying unit price by total number of items
to be procured.
69
PRICED BIDS are analysed by Procurement department to evaluate the commercial
feasibility of the order.
Fig. xvii) Priced Bid format
8. COMPLETE SUPPLIER CORRESPONDENCE
All the correspondence happened during the vendor selection process are filed at one
place. Supplier correspondence includes the queries, solutions, recommendations, etc
involved with a supplier.
70
9. TECHNICAL REVIEW
The department responsible for raising the requisition prepares the technical review of
the vendor to determine whether they are technically qualified or not. Only technically
qualified users are commercially evaluated by the procurement department.
10.RECOMMENDATION OF AWARD
EIL prepares Recommendation Of Award list for all the selected vendors and forward it
to HMEL. HMEL’s Procurement Department retains a copy of this recommendation of
Award list.
11. APPROVAL NOTES WITH ALL SIGNATURES
Final LOA is prepared and released according to release strategy. All the necessary
documents are maintained properly signed according to DOP.
12. LOA(LETTER OF AWARD) TO THE VENDOR
LOA copy is retained and forwarded to EIL. Final LOA raised by HMEL is the
authorization to a vendor to start making arrangements for supplies.
13.ACCEPTANCE OF LOA
Vendor acknowledged copy of LOA is retained by the company as a proof of acceptance
of LOA.
71
14. DETAILED PURCHASE ORDER RAISED
PO contains the complete details about the expected quantity and final prices agreed
upon by both vendor and HMEL during final negotiation sessions. PO is released by
HMEL according to releasing strategy and forwarded to vendor. The copy of final PO is
forwarded to EIL.
A purchase order usually contains: PO number, shipping date, billing address, shipping
address, terms of payment and a list of services/products, often including specifications
and reference or part numbers of the items to be purchased, with quantities and prices.
15.GOOD RECEIVED NOTES/SERVICE ENTRY SLIP.
These documents are generated when material or services are received. The GRN has
information relating to what has been received, how much and when. On completion of
the GRN a copy is sent to payments, with the invoice, for payment.
GRN Contains the following details:
1)Order Number. the number of the PO you are trying to receive items from.
2) Supplier. The name of the supplier who sends the material.
3) Delivery note. If there is a reference on a delivery note / invoice it can be put in here.
5) Material Name and Description: the name and description of the material being
received.
6) Quantity: the quantity of items you have received. This is not necessarily the same as
the amount expected. It is possible to create as many GRNs as you wish as long as the
72
total is the same as on the order. In some situations it may be necessary to create more
than one GRN should you the items on your order arrive at different times.
16. INVOICES
Original invoices are retained and forwarded to finance department for payments. An
invoice or bill is a commercial document issued by a vendor to the company, indicating
the products, quantities, and agreed prices for products or services the vendor has
provided the company. An invoice indicates that company must pay the vendor,
according to the payment terms.
73
CHAPTER 5:
ANALYSIS
74
The business processes are analysed after SAP implementation and following benefits
are observed :
1. Increased Employee Productivity and Reduced Head Counts.
2. Improved Operations Management.
3. Improved Information Organisation and access for Decision Making.
1. INCREASED EMPLOYEE PRODUCTIVITY AND REDUCED HEAD
COUNTS:
HMEL has reported increased employee productivity and reductions in personnel costs
due to the implementation of SAP solution.
SAP’s solution reported significant improvements in reporting accompanied by
increases in the productivity of end users (who could now create their own management
reports) as well as IT personnel (who no longer had to support the end users in the
creation of ad hoc reports).
SAP’s solution for financials and operations management has either reduced the number
of finance personnel or avoided hiring additional staff as a result of improved financial
reporting.
2. IMPROVED OPERATIONS MANAGEMENT
75
There is reported cost reductions resulting from improved financial and operational
management through their use of SAP. In particular, it has been observed that the
visibility these solutions provided into operations along with the automation of various
business processes led to significant reductions in costs and more profitable
management of business operations.
After SAP implementation there is an increase in supply-chain efficiency and reduction
in operational costs.
3. IMPROVED INFORMATION ORGANISATION AND ACCESS FOR
DECISION MAKING
With the standardization of data and the improved access to management information
executives and managers to make better business decisions that were based on sound
business data.
76
CHAPTER 6:
CONCLUSIONS
77
With the implementation of SAP, HMEL has significantly realised benefits through
improved efficiencies in the business processes of procurement which are critical during
project construction. Transparency increased in their business with the implementation
of SAP. Significant benefits are observed due to integration of business processes,
standardised systems, processes and controls and improved efficiencies.
78
CHAPTER 7:
RECOMMENDATIONS
79
7.1 LIMITATION OF SAP IMPLEMENTATION
1. Lack of breadth and repeatability :
2. High personnel costs
3. Excessive customization
1. LACK OF BREADTH AND REPEATABILITY : A positive return on the SAP
investment was achieved only when there was both a sufficient number of users and
sufficient frequency of use (breadth and repeatability) to reap significant productivity
based gains from the solution.
Since HMEL is relatively new company with less number of employees, level of breadth
and repeatability could not be achieved. Some employees are reluctant to use SAP
implementation which further reduces the chances of attaining the breadth and
repeatability.
HIGH PERSONNEL COSTS : The high personnel costs associated with the
implementation of SAP solution was a challenge for a quick achievement of a positive
Return On Investment.
HMEL has deployed around 50-75 full-time internal personnel for implementation
purposes. In addition to the large number of deployment personnel needed to implement
SAP, the personnel time spent on training was significant in some cases.
80
EXCESSIVE CUSTOMIZATION : HMEL found that the consulting costs associated
with customizing SAP were very high. Excessive customization involved the
development of too many individual interfaces between HMEL and EIL.
RECOMMENDATIONS
1. Develop a clear road map for the full exploitation of functionality to a wide breadth
of users and departments within a reasonable period of time.
2. Conduct a thorough review of reference users in similar industries to evaluate whether
the promised benefits really apply to the industry and the user base in question.
3. Avoid excessive customization of the solution and its interfaces,focusing instead on
deploying a usable system that will deliver returns within a measurable time frame.
4. Conduct a pre-deployment Return On Investment analysis that evaluates expected
returns and costs, taking into account the probability of achieving those returns and the
payback period for the investment.
81
BIBLIOGRAPHY
WEBSITES:
1. http://www.hmel.in
2. http://www.wikipedia. org
BOOKS:
1. Roberta S. Russell, Bernard W.Taylor, Operations Management, 4th edition, Person Education.
2. Nair, N.G Production and Operations management, Tata McGraw Hill Publishing Hours, new Delhi.
3.MM Verma (Materials Management), Sultan Chand & Sons.
4. Equity Press, SAP Cook Book Material Management, Equity Press
5. Martin Muray, SAP - MM - Functionality and Technical Configuration.
82
Recommended