A SUMMER PROJECT REPORT ON INVENTORY MANAGEMENT AT KRISHAK BHARTI CO-OPERATIVE LTD.

., HAZIRA 2010-2011 SUBMITED IN PARTIAL FULLFILMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION SUBMITED BY PATEL MIHIR MAHENDRAKUMAR GUIDED BY PADMALOCHAN BISYOI

PREFACE
This project report is prepared during the vocational training undertaken at KRIBHCO SURAT, on partial fulfillment of the degree in Master of Business Administration. Theory of any subject is important but without its practical knowledge it becomes useless particularly for the Management students. As a student of the Business Administration, we have studied many theories in the classroom, but only after taking up this project work we have experienced & understood these Management theories & practices in its fullest sense, which plays a very vital role in business field today. The knowledge of Management is incomplete without knowing the practical applications of the theories studied. This training provides golden opportunity for all students, especially when the Management student does not have perfect understanding of the working of a unit. Hence, this report is designed with the objective to gain practical knowledge & is undertaken on a Fertilizer Manufacturing Industry its working and its Finance Department.

Acknowledgement
I am glad to express my profound sentiments of gratitude to all who rendered their valuable help for the successful completion of this project report titled, Inventory Management. And to know the functions of FINANCE AND ACCOUNTS DEPARTMENT . I record my deep sense of gratitude to Mr. Thomas T. S. (Sr.private secratery-F & A) who had given me a chance to do a project under this roof of KRIBHCO and given opportunity to know the functions of FINANCE AND ACCOUNTS DEPARTMENT. I would me missing the opportunity if I do not show my gratitude to Mr. P.G. Soni dept. Manager(Account) who gave me information and guidance whenever required. Im also thankful and would like to show our special gratitude to, K. Ashokan (manager-Materials), Mr.V Satyanesan(Sr manager-material, Mr.M. N. Patel Pvt. Secy (HRD), Mr. Rajesh Smapat(Materials) who supervised my entire project. I would like to thank sincerely from the deep of my heart as they were the persons who constantly guided me and gave me the practical knowledge of the subject. As books were the source of our knowledge and data I would also like to thank Mr. P.T. Solanki Asst. Mgr. (Library head) and Shri Thomas TS, Pvt. Secretary, who helped me whenever required. My genuine sense of gratitude goes to the respective universities that gave me a chance to brighten my academic qualification that provided me this opportunity to have a practical knowledge of relevant fields.

CONTENTS
Certificate Preface Acknowledgement 1 2 3

Sr. No.
1 2 3 4 5 6 7 8 9 10 11 12

Chapter
OBJECTIVE OF THE PROJECT METHODOLOGY INTODUCTION TO FERTILIZER INDUSTRY PROFILE OF KRIBHCO INTRO DUCTION TO INVENTORY MANAGEMENT INVENTORY MANAGEMENT IN KRIBHCO IMPORTANCE OF LEAD TIME IN INVENTORY CONTROL SUGGESTION SUMMARY AND RECOMMENDATION ANNEXURE-1 ANNEXURE-2 BIBLIOGRAPHY

Page no.
5 6 7 13 22 33 85 90 91 93 97 101

OBJECTIVE OF THE PROJECT

A. PRIMARY OBJECTIVE:

The primary objective of the present study is to understand the techniques of the Inventory Management used in this concern, with a view to find out the extent to which the concepts of scientific Inventory control are being applied to them and introduce new scientific and practical Inventory Management techniques, if needed.

OTHER OBJECTIVES:
To supplement the Inventory control techniques organization for effective Inventory Management. in the

To provide necessary guidelines for determining economic order quantity, re-ordering levels and classifications of items using appropriate basis.

To minimize idle time caused by storage of raw materials, stores or spare parts.

To keep capital investment low in inventories, and keep down Inventory carrying cost and obsoletes losses.

METHODOLOGY
The project was carried out under two heads, namely: 1) STUDY OF INVENTORY MANAGEMENT 2) EVALUATION OF INVENTORY MANAGEMENT Taking the perspective of student from the finance point of view the methodology used for study was to answer three questions covering broad area of Inventory Management are as follows: 1) What is Inventory Management? 2) Why Inventory Management? 3) How the Inventory Management is done? To obtain answers to the first two questions, the discussions were carried out with various personnel of M/s. KRIBHCO. However, to obtain the answer to the third question (i.e. how the Inventory Management is done?) the existing Inventory control techniques were studied, a relationship and link was sought between theory & practice and it was found that many aspects from Theory can be and are being used in practice and necessary suggestions were made to promote existing Inventory Management at various level. Finally at the evaluation store beside the Inventory Interview technique, secondary data was collected from trial balance etc. which were rearranged, regrouped so as to meet the requirement of situation.

FERTILIZER INDUSTRY SCENARIO IN INDIA

In India, first of all in 1906, a single super phosphate (SSP) manufacturing unit was set up at RANIPAT near CHANNI (MADRAS) with annual capacity of 6400tones per annum. 1. PUBLIC SECTOR THE FERTILIZER AND CHEMICALS TRAVANCORE LTD. (FACT) HINDUSTAN FERTILIZER CORPORATION LTD. (HFC) MADRAS FERTILIZER LTD. (MFL) HINDUSTAN COPPER LTD. (HCL) NAIVELY LIGNITE CORPORATION LTD. (NLC) PYRITES, PHOSPHATES AND CHEMICALS LTD. (PPCL) PRADEEP PHOSPHATES LTD. (PPL) RASHTRIYA CHEMICALS AND FERTILIZERS LTD. (RCFL) NATIONAL FERTILIZER LTD. (NFL)

2. CO-OPERATIVE SECTOR Those are only two fertilizer manufacturing societies in co-operative sector INDIAN FARMERS FERTILIZERS CO-OPERATIVE LTD. (IFFCO) KRISHAK BHARTI CO-OPERATIVE LTD. (KRIBHCO)

3. PRIVATE SECTOR THERE ARE 17 COMPANIES IN PRIVATES SECTOR, which are producing FERTILIZER 1. Gujarat Narmada Valley Fertilizer Co. Ltd. (GNFC) 2. Hindustan Lever Ltd.(HLL) 3. Hari Fertilizer 4. ICI India Ltd. 5. Indo Gulf Fertilizers & Chemicals Corporation Ltd. 6. Mangalore Chemicals & Fertilizer Ltd. (MCFL) 7. Southern Petro Chemicals Industries Corporations Ltd. 8. Nagarjuna Fertilizer & Chemical Ltd. (NFCL)
7

9. 10. 11. 12. 13. 14. 15. 16. 17.

Shri Ram Fertilizer & Chemicals Tuticorian Alkali Chemicals & Fertilizer Ltd. Zuari Agro Chemicals Ltd. Bindali Agro Chemicals Ltd. Chambal Fertilizer & Chemicals Ltd. Coromandal Fertilizer Ltd. (CFL) Deepak Fertilizer & Petrochemicals Corporations Ltd. (DEPCL) E.D.I. Passy (India) Ltd. Gujarat State Fertilizer Company (GSFC)

The Role Of The FERTILIZER In The National Economy

AGRICULTURE
As critical input in crop production Fertilizer use promotes. It promoters agriculture growth food security & rural

INDUSTRY
Fertilizer promotes industry

SERVICES
Distribution network promotes domestic world trade, credit Banking, services, research, transport and storage services.

ENVIRONMENT
The proper use Fertilizers can help in 1-maintainance structure of of

Use of gas, sulfur etc. Foreign saving Exchange

soil

2-prevention of soil erosion and degradation. 3-control of deforestation

PROFILE OF KRIBHCO
In pursuance of the provisions of the Multi State Co-operative Societies Act, 1942, KRIBHCO was registered in April-1980 as a Multi State Cooperative Society under the Delhi Co-operative Societies Act, 1972 with registered office in the union territory of Delhi. HISTORY AND DEVELOPMENT PROJECT ZERO DATE FOUNDATION STONE LAID BY PROJECT COMPLETION 31st MARCH, 1981 Late Smt. Indira Gandhi then the Prime Minister Of India on 5th February 1982 31 st MAY 1985

TRIAL PRODUCTION AMMONIA UREA(STREAM 11/31) UREA (STREAM 21/41) FIRST RAKES DISPATCHED COMMERCIAL PRODUCTION

PHASE Ist 14th NOV1985 26th NOV. 1985 3rd DEC. 1985 1st FEB. 1986 1st MARCH 1986

PHASE IInd 30th NOV. 1985 1st DEC.1985 1st DEC. 1995

PLANT CAPACITY & CONSULTANTS PLANT AMMONIA UREA CAPACITY DAILY ANUUAL 2 X 1350 MT 8.9 LAKH MT 4 X 1100 MT 14.52 LAKH MT CONSULTANTS * M.W.kellogg, USA *-FEDO, INDIA *SNAMPROGETTI, ITALY *PDIL, INDIA SENIOR THERMAL ENGG.U.K

POWER

2 X 15 MWH

SENIOR THERMAL ENGG.U.K. 2 X 55 MT PER *PDIL

HAEVY WATER BIOFERTILIZER

YEAR 250 MT YEAR PER

* HTAS,DENMARK * DAE

OBJECTIVES
MAIN to increase the urea installed capacity, maintaining its market share. to ensure optimum utilization of existing plant and machinery, through proper maintenance. to diversify into other core sector like power, LNG terminal/port, chemicals etc. OTHERS to enlarge product mix through product development to continue and intensify efforts towards rural development &Co-operative movements to encourage the use of bio-fertilizers & increase its Production capacity

PROGRESSIVE USE OF HINDI KRIBHCO is fully committed to the use of official language Hindi and the use Hindi in the organization is increasing consistently. PRODUCT DESPATCH KRIBHCO UREA is transported from the plant by Railway Rakes & Trucks to 16 states, covering the Societys Marketing Zone. During 20002001 Rail, Road mix ratio of 87:13 respectively.

10

KRISHAK BHARTI SEVA KENDRA In order to provide all essential agro-inputs i.e. Fertilizers, seeds, pesticides, micronutrients, soil testing tips, agriculture implements and technology information order one roof. KRIBHCO has been continuing its operation of service center known as Krishak Bharti Seva Kendra, which covers 64 states.

GRAMIN VIKAS TRUST By virtue of its occupations with the Manufacturing, distribution and marketing of fertilizer seeds for benefit of farmers, the society has promoted a separate legal entity. GVT, to look after overall development of the deprived sections of Tribal community in different states of the country RESEARCH & DEVELOPMNENT The society has taken up a Research & Development project covering priority areas like fertilizers, bio-fertilizers, treatment of wastesgenerated by fertilizers industry seeds & fertilizers marketing. Liquid based bio-fertilizers are being developed in place of carrier-based bio-fertilizer.

BIO-FERTILIZERS:
KRIBHCO diversified into bio-fertilizers in 1995 in order to provide supplementary Nutrients at low cost through its Hazria plant with a production capacity of 100 MT PA. The plant capacity was enhanced to 250 MT PA in DECEMBER 1998. The types of BIO-FERTILIZERS manufactured by KRIBHCO are Rhizobium, Azotobacter & PSM (Phosphate Solubilisig Microorganism) KRIBHCO is implementing two more bio-fertilizer plants of 300 MTPA capacity each.

11

PRODUCTION &SALES OF KRIBHCO BIO-FERTILIZERS (Qty. in MT)

The following are the year wise details of Production and Sales of Bio-Fertilizer:

YEAR 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

PRODUCTION (MT) 389 296 603 560 775

SALES (MT) 373 351 516 611 714

SOURCE OF FINANCE:
EQUITY:

Government Of India Iffco Other Societies

: Rs. 450.00 Crores : Rs. 97.00 Crores : Rs. 38.70 Crores

The following is the graphical representation of Sources of Finance.

12

450

GOI Iffco Other Societies 38.7

97

(Source: Annual Report of KRIBHCO-2000-01)

PRODUCT:
KRIBHCO is manufacturing Nitrogenous Fertilizers and Allied Products viz.: Urea, Ammonia Liquid, Bio-fertilizer. Besides, its also has a 30 MW Power Plant of its own for generation of Power to meet its requirement. KRIBHCO has also been assigned the job of Operation & Maintenance of Heavy Water Plant of Department Of Atomic Energy.

MISSION:
The mission of KRIBHCO is to act as a catalyst to Agricultural and Rural Development by Selecting, Financing and Managing such Projects which are both, socially desirable & commercially profitable.

VISION:
KRIBHCO will become one of the leading fertilizer producers in the world funding growth through: Efficient Production Efficient Distribution Efficient diversification

13

 Efficient Utilisation of Resources

FINANCIAL ACHIEVMENT FROM BEGINING (RS.IN CRORES) NET PROFIT YEAR Before Prov. for After tax tax Income tax 198645.06 45.06 1987 1987126.80 126.80 1988 198885.75 85.75 1989 198991.51 91.51 1990 199094.65 94.65 1991 1991158.04 60.00 98.04 1992 1992227.78 82.20 145.58 1993 1993183.86 72.00 111.86 1994 1994292.89 95.50 197.39 1995 1995286.95 85.00 201.95 1996 1996328.48 99.50 229.38 1997 1997447.96 148.35 299.61 1998 1998390.40 129.27 261.13 1999 199979.85 24.00 55.85 2000 2000210.10 77.00 138.10 2001 2001248.33 61.00 187.33 2002 200240.01 06.00 34.01 2003 2003219.51 66.81 152.70 2004 2004185.83 45.24 140.59 2005 2005280.20 87.75 192.45 2006 2006231.53 38.29 193.24 2007 2007272.14 82.94 209.20 2008 2008269.34 19.21 250.13 2009 2009252.77 24.60 228.17 2010

14

-DIVIDEND PAID TO SHARE-HOLDERS (Govt. India, IFFCO, Other Society) YEAR 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-2007 2007-2008 2008-2009 2009-2010 Amount(Rs. in Crores) 13.84 26.86 26.77 26.81 26.83 35.82 36.13 36.29 36.48 50.39 59.78 83.36 85.31 57.87 58.56 97.92 34.39 88.43 73.50 78.47 88.33 74.50 72.46 78.86 Dividend % 3 6 6 6 6 8 8 8 8 11 13 18 18 12 12 20 7 18 20 20 20 15 14 20

15

CHAPTER-1

INTRODUCTION

The dictionary meaning of the word Inventory means stock of goods. In the financial terms, Inventory means the value of raw materials, consumables spares, work in process, finished goods, and scrap in which company funds have been invests. It can also be identified that Inventory are those goods which are placed, stored and used for day to day functioning of the organization. Thus Inventory can be defined an ideal resource of any kind having an economic value. TYPES OF INVENTORIES : Inventories are classified according to uses and point of entry in the alteration is as follows: 1. 2. 3. 4. Raw Material Stores, Spares and Consumables Work in Process Goods and Finished Goods

NEED TO HOLD THE INVENTORIES : There are the three major reason for holding inventories. 1. TRANSACTION PURPOSE 2. SAFETY PURPOSE 3. SPECULATIVE PUROSE

WHY INVENTORY MANAGEMENT? THE NEED

SIZE OF BUSINESS I. WIDE VARIETY AND COMPLEXITY II. URGENCY IN MATERIAL REQUIREMENT III. NEED FOR LIQUIDTY

16

 FACTORS INFLUENCING INVENTORY DECISIONS Following organization. [1] LEAD TIME ADMINISTRATIVE LEAD-TIME. MANUFACTORING/PROCUREMENT LEAD TIME, TRANSPORTING LEAD TIME AND INSPECTION LEAD-TIME. factors influence the Inventory decisions of an

[2] RELEVANT COSTS 1. 2. 3. 4. COST OF ORDERING COST OF CARRYNG INVENTORY COST OF UNDER STOCKING OVER STOCKING COST SERVICE LEVEL

OBJECTIVE OF THE STUDY The primary objective of the present study is to understand the techniques of the Inventory Management used in this concern, with a view to find out the extent to which the concepts of scientific Inventory control are being applied to them and introduce new scientific and practical Inventory Management techniques, if needed. To supplement the Inventory control techniques in the organization for effective Inventory Management. To provide necessary guidelines for determining economic order quantity, re-ordering levels and classifications of items using appropriate basis. To minimize idle time caused by storage of raw materials, stores or spare parts.

17

To keep capital investment low in inventories, and keep down Inventory carrying cost and obsoletes losses.

PROFITS OF INVENTORY MANAGEMENT: Inventory control ensures an adequate supply of materials; stores, spares, etc. minimize stock outs and shortage and avoids costly interruption in operation. It lowers down investment in inventories. Inventory carrying cost and observances losses. It facilities purchasing economics through the measurements of requirements on the basis of recorded experiences. It eliminates duplications in ordering or in replacing stock by centralizing the source from which purchase requisitions emanate. It permits a better utilization of avoidable stocks by facilitating inter department transfer within a company. It facilities cost accounting activities by providing a means for allocating material costs to products, departments or other operating accounts. It provides a check against the loss of materials through carelessness. It enables Management to make cost and consumption comparison between operations and periods. It services as a means for locations and disposition of inactive and isolate items of stores. Perpetual Inventory values provide a consistent and reliable basis for preparing financial statements.

18

INVENTORY KRIBHCO

MANAGEMENT

IN

A study in KRIBHCO was carried out taking into consideration the concept of total material control, which significant that efficiency of any organization is contingent upon having the right material of right quality or right place in the right quantity at the right time and place. To study the Inventory Management the several of interview techniques depending on the situations were followed. Discussions were carried out with various personnel of the company to study the following 3 broad areas.

1. PURCHASE CONTROL 2. STORAGE CONTROL 3. WAREHOUSE ACCOUNTING To study the above a relationship and link was sought between theory and practice. An evaluation was done to each stage and suggestions were also made to improve the existing Inventory control system.

19

PURCHASE DEPARTMENT. The prime responsibility of Purchase Department is to arrange supply of various raw materials, consumables, spare parts etc. to the plant for the production purpose and to the other departments for maintenance and operation purpose. The materials should be procure at the right prices from right source of supply. * Purchase Procedure The following are some of the essential steps in this regard. * Responsibility for Purchases - Functions All purchase functions shall be the responsibility of the Materials Manager posted in the plant. The purchase functions in other offices shall be handled by one single office nominated/designated for the purpose. The indentors from various departments should refrain from issuing inquiries, inviting bids entering into correspondence or negotiation with vendors/contractors. All requisitions for purchase duly processed in accordance with the procedure laid down, hereinafter should be forwarded to Materials Manager/Designated officer for necessary action. * Registration of Vendors The purchase department is responsible for developing a list of approved vendors for various types of materials, services. An advertisement is issued in all the leading newspapers inviting applications in the prescribed proforma for registration of suppliers and contracts listing out various types of purchases and services that are likely to be made during the next three to five years. The applications received is scrutinized by a Committee consisting of a representative from Technical, Finance and Purchase Department (nominated by the General Manager) and to ascertain the resources. Capacity and quality of workmanship of vendor. The Committee can also call the vendor and contractors for personal discussions and seek clarifications on the applications and obtain such other information as may be considered necessary by the Committee. The list of approved vendors and contractors should be updated atleast every five years by issuing a press advertisement. * Requisition to Purchase/Work The indentors from the various departments will raise a requisition called the Material Purchase Requisition for purchase in the prescribed

20

proforma. It should be ensured that the requisition for purchase should be completed in all respects with regard to: A) Description of the material/equipment/scope of work. B) Material of construction/specification C) Temperature/Pressure/Standard if anywhere applicable. D) Quantity and unit of measurement. E) Date when delivery of material/services is required. F) Name of vendor in case of the item is of proprietary nature. G) Estimated value and budget head. H) Whether item is a stock item/non-stock item. The requisition for purchase of materials which have been declared as stock-item will be raised by the stores Department after the quantity in stock has reached the Re-order level as determined for the respective items. Such requisition amongst other particulars should also indicate the minimum, maximum and re-order level the date on which last supply was received and the average consumption per month since last purchase. The requisition for purchase of non-stock items will be invariably rooted through the Stores Department which will endorse on the requisition, the availability/non-availability. In case the item is available, the quantity there of be indicated on the purchase requisition so that the quantity to be purchased can be adjusted by the Materials Manager in consultation with the indentor. The requisition for purchase of capital items award of Civil Work, erection contracts, contracts for repairs to plant and machinery and equipment handling and transportation of materials, repair/servicing of equipment hiring of casual labours. Selection of contractors for repair/maintenance of township and plant buildings, mechanical, electrical, isolation, provision of other services and painting jobs on schedule of rate valid for one year will be sent directly to the Materials Manager after the same are approved by the competent authority. All requisitions for purchase of materials or for award of work as described above will be raised by the respective departments. The Department Manager would ensure that the purchase requisitions must indicates: A) The budget provision. (This will be checked by F&A)

21

B) The amount utilized upto the previous requisition. C) The estimated value of the present requisition and D) The balance available under the budget head after booking the present requisition. * Record and Numbering of Requisitions All purchase requisitions received in the purchase department shall be entered departmentwise in a register maintained for the purpose. The Indenting deparatment shall allot a number to each requisition and endorse the same on all copies of the requisition. The numbering procedure should be such that the requisition can be identified deparatment-wise. The Purchase Department will issue a report by the 15th of the following month listing out the requisitions received during the previous month and their current status and mail the same to the respective Identing Departments. A copy of these report will be put to the General Manager for his information. The Identing Departments will review the report from the Purchase Department and shall ensure that the missing requisitions are traced and are handed over to the Purchase Department promptly.

* Enquiries/Invittion to Bid On receipt of the requisitions from the various departments, enquireis is issued by the Purchase Department as per the procedure detailed below: A) Enquiries to be issued in the prescribed proforma. B) Enquiry document is suitably modified to conform to the material/services proposed to be procured. C) Enquiry document describes in detail the description of the material/services the technical specifications etc. D) The delivery time and the various general and special terms and conditions governing the purchase/work. The enquiry document stipulates that: i) KRIBHCO reserves the right to accept or reject any/all bids without assigning any reason. ii) KRIBHCO shall have the right to placed the order/award the work to one or more vendor/contractor. E) Enquiry floated for obtaining bids for a Civil work oir for cleaning, handling, loading and transportation of materials or provision of services a draft of the contract proposed to be entered into is sent along with.

22

Enquiries is issued as per the following guidelines: Estimated value of Minimum No. of Minimum No. Of bids purchase order/work vendors to whom to be obtained order/contract enquiry to be issued 1) Upto Rs.1,00,000/5 3 2) Exceeding All suppliers on the 3 Rs.1,00,000/and approved list upto Rs.3,00,000/3) Exceeding Press tender Rs.3,00,000/-

The idea in prescribing the minimum number of vendors to whom enquiries to be issued and bids to be obtained is to create a healthy competition amongst the bidders, so that society is able to procure materials and services at the most economical price. Open tenders through advertisement in the press is invited in case of all purchase the estimated value of which exceeds Rs.3 lakh if no approved vendor list is available for a particular item, press tender, shall also be invited for purchases exceeding Rs.1 lakh. Open tenders are invited for selecting contractors for performing maintenance work, relating to civil, mechanical electrical and instrumentation work against a rate contract (SOR) which will be renewable every year. Press tenders for selecting such contractors will be advertised in one of local English and another in local language paper which has a good circulation: where fabrication oif equipment or major repairs to plant and machinery are involved, the enquiry floated to all the major fabrication/repair shops for determining the number and/or mode of enquiry to be issued the requisition is evaluated on the basis of last purchase order or the present estimated market value of the material/equipment which ever is more. The competent authority in his discretion may allow floating of limited enquiry in respect of purchases not exceeding Rs.3 lakhs and works/contracts for a value not exceeding Rs.5 lakhs in each case. Notwithstanding the forgoing, invitation of bids by press tender will not be necessary in respect of: 1) Purchase of proprietory items

23

2) 3) 4) 5)

A) 1) 2) 3) 4) 5) 6)

Items, the prices of which are fixed by the Government. Items, the import of purchase of which is chanalised through a Government Deparatment or public sector undertaking and Items, standardised for particular brand/make. However, all purchases of proprietory items and such other items the prices of which are fixed by the Government will require prior approval of the Managing Director/Executive Committee/Board of Director if the value of such purchase exceeds the delegated authority of the General Manager/Group Manager. For purchases exceeding Rs.3 lakhs and upto Rs.10 lakhs, one insertion may be given in the following news papers. Times of India, Bombay/Ahmedabad/Delhi. Indian Express, Ahmedabad (now also Baroda0 The Hindu, Madras The Statesman, Calculta Gujarat Mitra, Surat National Herald, Delhi

24

B) 1) 2) 3) 4) 5) 6)

For purchases exceeding Rs.10 lakhs, one insertion may be given in the following news papers. Times of India, Bombay/Ahmedabad/Delhi. The Statesman, Calculta The Hindu, Madras The Indian Exress, Ahmedabad Gujarat Mitra, Surat National Herald, Delhi

The competent authroity, if he is satisfied may waive the advertisement of tenders for such purchases, the value of which does not exceed the power delegated to him for making purchases. The General Manager/Group Managers will obtain prior approval of E.D./Managing Director for waiving advertisement of tenders where the purchase exceeds his delegated authority. The General Manager/Group Managers may however waive advertisement of tenders in excess of their delegated authority of the purchase is required to be made to meet an emergency in the plant. In such cases post facto approval of the Managing Director may be obtained later. Normally, such waivers may be resorted to in the case of purchase of proprietory items or to cater to an emergency in the plant whenever the competent authority waives advertisement in the press for inviting bids, reasons are recorded in writing. A monthly report on such waivers is submitted to the Managing Director for his information by 15th of the following month. NIL report should also be submitted in case there was no waiver during the preceeding month. If the tender proposal to be advertised is for a work which involves design and engineering amongst other things. It would be preferable if the bids are invited in two parts viz. (a) Technical and commercial unpriced bid and (b) Priced bid. The date of opening the priced bid is fixed later than unpriced bid. * Time Allowed for Submission of Bids Normally 2 weeks time is given to the vendors for submitting their bids. In case of enquiries for engineering civil and fabrication work where calculation are involve and it is not feasible to obtain the bids early. The time limit for submission of bids may be increased to four weeks. Bidders are advise to indicate on the envelopes containing the bid, the enquiry number, the date and time of opening the bid. The bids shall be

25

addressed to Materials Manager or such other officer nominated to perform purchase functions. Extension in due date may be done in consultation with indenting department, if inadequate/no response to enquiry.

* Validity of Bids The bidders are advise to submit bids valied for 45 to 60 days. It is ensures by the Purchase Department that the orders are placed on the successful bidder within the validity period of the bid. If after opening of the bids, it is inevitable to charge the specification of material/work, the revised specifications are circulated to all the bidders who responded against the original enquiry and bids will be obtained a fresh from all the bidders. However occasions for changing specifications and asking bidders to quote a fresh are rare and in all such cases prior approval of the General Manager/Group Manager must be obtained. The enquiry documents stipulates that no bidder would be allowed to revise/alter his bid after opening of the bids and within the validity period. In case any bidder revises/alters his bid, the same shall be rejected even through the revise bid may conform to specification and be the lowest. * Opening of Bids The bids received against the open tender are opened on the date and the time stipulated in the tender document as under: A) All advertised bids to be opened publicly. B) Bids not advertised (published) but where estimated value is more than Rs.1 lakh bids should also be opened publicly. C) For bids where value is less than Rs.1 lakh, public opening is not a must but if representative of some bidder wish to be present, Kribhco has no objection. All bids received are opened by the Purchase Department in the presence of the representatives from the Indenting Department and Finance Department. The bids opened are initiated and dated on all pages by all the persons who attend the bid opening. In case there is any cutting or alterations in the rates quoted or to the prescribed terms and conditions, the same will also be attested by all the persons attending the bid opening.

26

A record is kept of the names of representative who attended the bids opening from Kribhcos side and the vendor representatives who attend the bid opening. All the persons including the bidders should sign against their name in token of having atteneded the bid opening. Bids opened is read out to the vendors who attend the bid opening. `Enquiry Response Sheet may also be filled giving details of tender enquiry Number, Date, Due date, Opening date, Number of bids received etc. And is signed by Kribhco representative. Where and priced bids have been invited in two parts, i.e. unpriced and priced bids, the unpriced bids is opened first. Any clarifications/additional information required by Tender Committee is sought in writing from the bidders. The bidders will have all option to revise the price in the commercial bid before the same is opened. In case any bidder wants to revise/alter the bid, he can do so and submit the changes in the price in a closed envelope before the due date. The commercial bid alongwith any revision is opened on the appointed day and time in the presence of bidders who wish to be present. * Late, Invalid and Unsolicited Bids All bids received after the opening oif bids are treated as `Late-bids and will be ignored. All late bids are returned to bidders un-opened. Bids which are not accompanied by the prescribed earnest money deposit will be treated as `Invalid Bids and will be endorsed as such. The tender documents stipulates that earnest money can be deposited either in cash or by a Bank Draft or in form of Bank Guarantee in the prescribed proforma attached to the tender document. `Unsolicited Bids are not considerd not be opened and even though they may be the lowest will not be entertained. * Quotation Comparison Statement (QCS) After the tenders are opened a Quotation comparison statement (QCS) is prepared by the Purchase Department. All the bids received are listed in the QCS. In-valid bids are listed in a separate statement and attached to the QCS. The QCS is checked by an official of the Purchase Department (not below grade `N) and both the persons who prepared and checked the QCS will sign the same. The bids conforming to the specifications and lowest in value will be rated in the QCS, as lowest (L1). Second lowest (L2), third lowest (L3). After the QCS has been checked and rated the Purchase Department Incharge

27

forwards the same alongwith bids in original to the Identing Department for the review of the bids and making recommendations for Purchase. The review of QCS and selection of successful bidder is done through a Tender Committee. The General Manager/Group Manager nominates a Tender Committee consisting of a representative from Indentors Deparatment, Purchase Department and Finance Department, Purchase Department will forward the relevant papers/file prior to the meeting to the members of the Tender Committee is so required by them for review. The Tender Committee keeps a return record of their discussion on the QCS as and when they meet. The Tender Committee may obtain any clarifications from the bidders as may be necessary. All clarifications are sought through Purchase Department only. The Indenting Department shall not entered into direct correspondence with the bidders. All proposal for purchases detailed below shall be referred to the Tender Committee (As may be appointed by General Manager/Group Manager) for review and making recommendations: A) All purchase order the value of which does not exceed Rs.50,000/- will be finalised on recommendations of the Indentor and Purchase Department with the concurrence of respective Manager (F&A) except in the case of such purchase orders which are being finalised against a single bid. All purchase order against single bid will be finalised as per procedure prescribed here in after. All proposals for selecting contractors to work on schedule of rates (S.O.R.) valid for one year. All proposals for cash purchases involving expenditure of Rs.25,000/or more.

B) C)

* Selection of Successful Bidders Normally the lowest bid which conforms to the specifications is accepted. However, while the lowest bid even though conform to the specifications is not accepted. Full justification for accepting other than lowest bid shall be recorded in writing and approval of the competent authority will be obtained. * Single Tender Where in response to enquiry only one bid is receieved and the purchase order is proposed to be finalised on a single tender, approval of the

28

competent authority is obtained as per the delegation of powers, while according such approval the competent authority records the justification for making the purchase on single tenders. * Negotiation Where the lowest acceptable bid received against the enquiry is considered high or where there is scoipe for reduction in price in the opinion of the Tender Committee (which may be recorded) and negotiations are considered necessary. The following course of action may be taken: A) Negotiation is conducted commencing with the technically acceptable lowet four bidders. In conducting negotiations the parties are called one after another starting with the lowest bidder. The original lowest bidder can be given second change to offer further reduction if the other bidders revises his price lower than the original bid of the lowest bidder. The scope of negotiation can be enlarged beyond the lowest four bidders in the following circumstances: 1) If the work to be awarded is intended to be split and awarded to more than one contractor. 2) If a ring is suspected and the negotiation with the initial four lowest bidders do not yield satisfactory results. 3) If higher bids are in very close proximity of the two lowest bids and any change in quantities can change the rating of the bidders. If a single bid is received against the open enquiry. The same can be accepted if the rates are considered reasonable. Otherwise, negotiations are held with the bidder and a decision taken either to accept the single bid or to resort to re-tender. If a single bid is received against a limited enquiry normally it is rejected and re-tendering resorted to. However, the competent authority, if he is satisfied that it would be in the interest of Kribhco, to accept the single bid received. He may do so and record reason in writing.. Such bid is accepted on the recommendations of the Tender Committee and concurrence of the Finance Department. All negotiatins are conducted by the Tender Committee nominatd by the General Manager/Group Manager. The Tender Committee keeps a written record of their discussions with the bidders and amongst themselves on dayto-day basis and this record of discussions is signed by all the member of the Tender Committee and the bidders.

29

* Guaranters The Purchase Department obtains from the vendors/contractors Bank guarantees in the proforma prescribed. A) Advance payment B) Performance Bond C) Free issue materials The Bank Guarantee in respect of free issue materials may be waived by the competent authority in such cases where he is satisfied that the material isued to the vendor contractor will not be moved out of the factorys/housing colonys secured work site. * Amendment to Purchase Order Any change/amendment to the purchase order/work order shall be issued in writing after the same has been approved by the competent authority. The amendment to purchase order shall be issued in the prescribed proforma and shall be numbered serially. All change orders where the terms and conditions are altered and/or which have financial implications will be routed through finance department for concurrence before the same is approved by the competent authority. The amendments to the purchase orders will also be raised in the same number and will be distributed in the same manner as the original purchase order.

* Repeat Orders Repeat orders without calling for fresh bids may be placed against previous orders within one year from the date of issue of original order. No repeat order shall however, be placed against a purchase order which was placed at higher prices in the interest of early delivery. The quantity and value of the repeat order should not exceed the quantity and value stipulated in the original order and should not be resorted to more than once in any case. While placing the repeat order, it should be ensured that there has been no down-ward trend in prices since the original order was placed. Repeat orders shall be placed with the concurrence of the finance department and qapproval of the competent authority. The authority competent to approve repeat orders will be the same which approved the original order. * Follow-Up of Purchase Orders

30

The Purchase Department shall receive all the mail from the vendors and shall reply to them in consultation with other deparatments whenever necessary. The purchase deparatment shall keep Identiting Department informed of the status through periodical/monthly reports. The Purchase Department shall be responsible for following up of the purchase order/contract with vendors and transporters until the material is received and accepted at the plant/stores. * Inspection of Material The Purchase Department shall Co-ordinate with other departments and arrange inspection of materials at vendors shops prior to despatch wherever stipulated in the purchase order. Inspection of materials in other cases shall be carried out on receipt of materials at plant site/stores only those materials cleared by the inspection as conforming to purchase order specifications will only be taken on charge in stores. The person inspecting the material will sign on the `Stores Receipt Voucher in taken of having inspected and acepted the material. * Damaged/Short/Rejected Materials The Stores Department shall be responsible for sending suitable intimations to the: 1) Vendor for materials rejected if the same do not conform to the specifications mentioned in the purchase order. 2) Vendor and Insurance company for material received short or damaged. Where the delivery offered by the vendor was ex-works the intimation for damaged/short receipt of materials will be sent only to the Insurance company. The intimation to vendor and the Insurance company for material received short or damaged or rejected should sent as early as possible after the material is inspected but in any case not later then a week from the date of their receipt at plant/site. A copy of the intimation issued by the Store Department will be endorsed to: 1) Finance and Accounts Departments for lodging the Insurance claim or making suitable recovery from the vendor.

31

2)

Purchase Department for following up, the replacement supplies or obtaining the non-delivered quantity.

The Purchase Department shall be responsible for following up with the vendor, the replacement of materials rejected or short supplied by him. The Purchase Department shall evolve a suitable system so that suitable communication is issued to the vendor until the replacement supply is received or quantity short delivered is made good by him. * Insurance Claim The Accounts Department on receipt of a copy of the letter issued by Stores Department make and entry in a register maintained for the purpose and shall lodge suitable insurance claims. The Accounts Department shall coordinate with other departments wherever necessary and collect the details of materials and other costs as may be required for preferring a claim. * Cash Purchase Cash purchases or materials should be avoided as far as possible. Cash purchases should be resorted to only meet the plants emergencies or where it would not be economical to call for quotations owing to the small value of purchases. The General Manager/Group Manager may, however, consider keeping a suitable amount not exceeding Rs.2000/- as Imprest fund with the Purchase Department, Maintenance Department and Administration Deparatment to enable them to make cash purchase of items to meet the urgent day-to-day needs of the plant. * Bank Guarantees The Finnance and Accounts Department is responsible for safe custody of Bank Guarantees received from vendors/contractors. The Finance and Accounts Department maintains a separate register for keeping records in the proforma enclosed for Bank Guarantee obtained against: A) Advance payment B) Performance guarantee C) Free issue of materials The Bank Guarantee register is reviewed every month to ensure that all the guatantees obtained are valid. Such of the bank guarantees which are found to be maturing/expiring will be reviewed with the respective department to ascertain if any further revalidation would be required to conform to the dates of completion of work/delivery of material. Normally the validity of Bank Guarantee should be as under:

32

a) Bank Guarantee for: From the date of payment until the advance is luquidated. b) Performance guarangee: From the date of payment of advance or commencement of work whichever is earlier until expiry of maintenance period. c) Free issued material: From the date of issue of material until settlement of quantitative account of material issued or delivery of fabricated equipment whichever is later. The Finance and Accounts Department is responsible for issuing intructions to the vendor/contractor for obtaining the extension of the existing Bank Guarantees before expiry of the claim period. A suitable system should be introduced by the Finance and Accounts Department to ensure that a regular follow-up is done with the respective vendors/contractors until the extention to Bank Guarantees are received. Finance and Accounts Department also ensures that until extension to bank guarantees are received from vendors/contractors on equipment amount is with held from running/final payment due to the vendors/contractors. The Bank Guarantee shall discharged in consultation with the respective department after receiving the conformable from them that the maintenance period under the purchase order/work contract has been completed and that there is no claim against a vendor/contractor. The Bank Guarantee for advance payment can be discharged by the Finance and Accounts Department after ensuring that the advance paid have been liquidated/recovered from running final payment where the vendor/contractor does not communication issued for extending the validity of the bank Finance and Accounts Department will invoke the bank guarantee before expiry of the claim period after consulting the respective department and obtaining the approval of the General Manager/Group Manager.

33

EVALUATION OF EXISTING PURCHASE SYSTEM OF KRIBHCO: The existing purchase procedure gives fair chances of competition to all the vendors. It leaves no room for malpractices or favoritism of employees i.e. nobody oblige any one out of way. It is not very rigid. In time of urgency of requirement, necessary deviations are approved by competent authority so as to avoid stoppage of work. The procedure is based on democratic way of working. Good suggestions to improve efficiency are always considered. Various annual rate contract running contracts are entered for regular consumable items, like oil and lubricants, stationery, chemicals, medicines, printing job etc. This is reducing the repetitive job times and money of company. But there are shortcomings also, which are evaluated taking into consideration the five essentials of purchase functions are as follows: (1)Purchase time, (2)Purchase quantity, (3)Purchase quality, (4)Purchase price and (5)Source of supply

PURCHASE TIME The purchase time indicates the lead-time i.e. time taken to physically receive the material from the date of its indent. To find out the lead time five cases different items have been studied randomly, and analyzed its fact which indicates that by following the existing procedure, the administrative lead time is very long i.e. 5 to 7 months, while suppliers lead time is about 2 to 3 months.

34

SUGGESTIONS: (1)Approved vendor list should be maintained so that wastage of time to get vendor list approved every time could be avoided. (2)Contract system should be followed to purchase stock items with approved vendors so that the continuity of supply can be maintained without following such long procedure and waste of time. It this case the economic order quantity should determined for each item and a list of order per year with specific time limit should be given to contractors in advance, fixing the maximum, minimum Inventory levels (3)For non-stock items, the limits for issuing inquiry should be fixed maximum to seven days. Similarly time limit for recommendations and concurrence by technical department and finance department also be fixed. In case of delay beyond this time limit, competent authority should be informed for necessary instruction. PURCHASE QUANTITY AND QUALITY: It has been observed that the quantity of material is being purchased considering 6 to 12 months consumption that means no economic order quantity has been fixed for different types of material. Due to the existing system: Company is incurring cost of carrying Inventory interest of capital rent etc. Company as also incurring loses due to the depreciation in quantity, detoriation in quality and obsolesce of materials during storage. Company is also incurring avoidable expenditure such as holding and up keep of surplus material, financial losses due to fall in the price of materials, extra expenditure on excess of materials required. It is suggested that before taking final decision economic order quantity should be determined for each item and order should be placed accordingly. The determination of economic order quantity techniques has been discussed on succeeding pages.

35

PURCHASE PRICE The price of each item is being compared with suppliers quotations considering the quality of material to be supplied. Although, purchase department should keep itself informed of the price trends, with the help of market reports, trade papers and journals, report by purchase against and sales representative of the suppliers, published catalogue and price list. SOURCE OF SUPPLY The selection of a particular supplier is made after inviting tenders from possible source of supply. There are four types of tenders commonly used, which are (a) Single tender, (b)Limited tender, (c) Open tender and (d)Global tender The tender received are opened on the date and time stipulated and compared to select a final vendors, considering quality, delivery after sales services etc. which indicates that right source is selected, only thing taken in to consideration is to maintain cordial relations with suppliers.

STORAGE CONTROL The control of materials while in storage is affected through what is known as the perpetual Inventory. Thus two main functions of the perpetual Inventory system have been studied which are: (i) (ii) Receipt and issue system, and Maintenance of store records.

And also the use of Inventory control techniques have been evaluated considering existing position of KRIBHCO.

36

WAREHOUSE SYSTEM AND PROCEDURE THE SCOPE: The procedure comes in to operation immediately on receipt of dispatched documents or dispatched intimation in the stores and covers on the activities, i.e. clearance, delivery, inspection, stock charging and preservation, issue and return of materials by the consumer and ends after striking out balance from the stock card and delivery of documents VIZ. SRV.SIV. to the account department.

RECEIPT SYSTEM The system for receipt starts even before the time when the material actually reached the plant, when purchase order is planed a copy is sent to the stores indicating quantity and approximate delivery date. These are arranged in chronological order so that any time the volume of receipt can be estimated. This also helps in planning labour contracts when unloading activities exceed a particular limit. This is the first step in the store system. Suppliers, once they despatch the goods, normally send and advice note, dispatch note to the stores. This provides information on the date of dispatch, carrier details, description consignment and value. This as sent in advance so that quick and easy clearance may be done. On receipt of consignments, the store personnel check the consignment and tally the material with suppliers delivery note / challans along with relevant documents, the material is visually checked for any apparent damage or discrepancy. Appropriate remarks / endorsement is made accordingly on the delivery notes / challans in case of discrepancies on deviation being found in the suppliers received. Material received against the delivery notes / challans will be checked with the relevant purchase orders details mentioned in the challans / delivery notes and packing notes received with the consignment. Store receipt voucher is prepared in seven copies for item found in an order. The material is than paid up for inspection, items finally accepted is physically handed over to the custody stores or project departments

37

and their acknowledgement obtained in the appropriate columns of the receipt notes. INSPECTION In exercising control on the quality of incoming materials inspection plays an important role. Material purchased in India and abroad are inspected according specifications, prescribed tests, drawings, approved samples etc as stipulated in the purchase order. To inspect different types of materials following inspection methods are used. (a)Inspection by third party : Such agencies are EIL cloyed register, IBR; etc. acceptance of material is based on the certificates and reports of these agencies. (b)Inspection by indenting departments : At vendors premises during manufacture of materials or before dispatch of the same the concerned officers of indenters carry out such inspection.

38

(c) Materials test certificates : The material may be inspected and accepted based on the manufactures test certificates. (d)Materials are inspected and accepted by carrying out chemical, electrical or mechanical test either of the project site or through the recognized lab as stipulated in the purchase order. (e)Some materials like shop, cotton, waste, phenol etc are accepted by visual inspection. Proprietary nature of materials are accepted by either visual inspection or carrying necessary tests whenever required. (f) Materials are also accepted after ascertaining the quality as per samples on stipulated in the order. ISSUE SYSTEM: The issue system relates to function of issue card and Inventory control section of stores. It covers all material stocked by the KRIBHCO stores and all bulk and raw materials directly stored by the users. It begins with the preparation of issue voucher and ends with their submission to accounts departments. GENERAL AUTHORITY AND RESPONSIBILITY: The authority for receipt and storage of all the materials is centralized in the store department accepts medicines and stationary. Issue will be made only on receipt or presentation of authorized requisition. Stores department is responsible to provide material (through stores issue voucher) to the authorized requisition on demand, all material declared as stock items and contained in the store catalogue as the desired and the quantities requested for immediate use by them. QUANTITY OF ISSUE: In respect of consumable stores and such other materials as are required frequent or at odd hours, the issue is made in large quantities to

39

reduce electrical work and to ensure ready availability of materials at sight place when required. The quantity issued is for 15 days consumption. The entire issued quantity is charred in full to the requisition cost center though all of its not actually used or consumed immediately. In case an item stocked as a set it is issued as a set not in parts. PERPETUAL INVENTORY SYSTEM: KRIBHCO has the following comprises: (i) Cardex system (ii) Stores ledger and (iii) Physical stock verification CARDEX SYSTEM To maintain the quantitative records of receipt and issues and closing balances of items of stock a cardex system is followed. Stores department is doing all the quantitative accounting of materials. STORES LEDGER For the all quantitative accounting of materials stores department is responsible. Where as for monitory accounts of materials accounts department is responsible. One set of each document for receipt issue and return of materials is sent to priced store ledger section in the accounts department. Based on these documents priced stores ledger are prepared for each item of the stores. The price store ledger provides the volume of each receipt issue and return along with the quantity accounts. PHYSICAL VERIFICATION OF STOCK The physical verification of stock is contemplated with a view to ensuring that stores and materials held in stock tally with the quantity and specification shown in the cardex. The actual balances agree with the balances recorded in the cardex and discrepancies noticed if any are investigated and adjusted for accounting purpose. perpetual Inventory system, which

40

It has been observed that time gap of verification is six months, which should be reduced to be three months for non-stock items, and for stock items verification should be done at the time of placing orders. So that the determined Inventory level can be maintained even of spoilage, damages and obsolescence takes place.

MATERIAL CONROL TECHNIQUES: To know the practical use of various Inventory control techniques in KRIBHCO. Following Inventory control techniques were studied and evaluated are. (i) (ii) (iii) Codification system. Classification of Inventory. Determination of E.O.Q. and

(iv) Determination of Inventory levels. CODIFICATION SYSTEM: Codification is the strategy to identify the various items of an Inventory in an unambiguous manner. The motivating factor in codifying inventories is to reduce the verities in the materials / holdings of the organization by standardizing supplies.

EXISTING CODIFICATION SYSTEM IN KRIBHCO: KRIBHCO has adopted Kodak system of codification, which is based on mine group codification system. First two digits have been used to codify main group. Remaining seven digits have been used to codify all the specifications in that group.

41

The main group have been sub-divided in the following four categories for easy segregation of materials. CATEGORY 1. 2. 3. 4. General stores Electrical equipments and spares Instrumentation equipments and spares Electrical equipments & spares MAIN GROUP NO. 00 50 64 81 TO TO TO TO 49 63 80 99

BASIC STRUCTURES IS GENERALLY IN THE FOLLOWING BASIS GENERAL STORES (00TO 49) DIGITS I II III IV V VI VII VIII IX MAIN GROUP SUB GROUP SPECIFICATION/ MATERIAL OF CONSTRCTION/ THICKNESS SIZE OF ITEMS

ELECTRICAL AND INSTRUMENTATION EQUIPMENT & SPARES 50 TO 63 AND 84 TO 80 I II III IV V VI VII VIII IX

DIGITS MAIN GROUP

MAKE TYPE SPECIFICATIO ITEMS

42

ELECTRICAL EQUIPMENT & SPARED (81 TO 99] I II III I V V VI VIII I V I I X DIGITS MAIN GROUP PLANT CODE SPECIFICATION/EQUIPMENT/SIZE/RAT ING SUB ASSM / CONSTRUCTION SPARE PARTS / S. NO. The codification system has been introduced in KRIBHCO from 22nd December 1984 only. The detailed catalogue against each main group is still under preparation and is to be circulated on its operation. A list of primary group (main group) is enclosed in Annexure-7. The existing codification system has the following advantages. Avoidance of supplication due to multiple names, long description of the items and storing of the same items under different names is avoided. Easy to identify. Reduction in clerical work.

STANDARDISATION: Standardization is one of the tools available to Management to optimize on the number of items and reduce inventories. With standardization the number of items to be procured / manufactured can be reduced and for the same value of business the quantity can be increased. Thus, it leads to economic scale and cost reduction. A standard is a model or general agreement of a rule established by authority concern or custom created and used by various level of interest. The importance of standardization is interchangeability of parts. Once an item has been standardized. The number of manufacture who can supply the standard parts will increase and this will result in better availability lower cost and continuity of supply. Company having stock of only standard items and being assured of timely supply company will be able to reduce obsolesce

43

and also reduce the inspection formalities and can be entered into contracts for regularly supply. It is suggested that KRIBHCO should follow the standardization technique to gain above said benefits. CLASSIFICATION OF INVENTORY: The universal problem can be solved taking in to consideration its important aspects. Similarly, in Inventory Management classification is meant for solving the Inventory control problem from its important angle. The inventories having huge amount of use in the organization has to be controlled very strictly and low amount of use should be kept low control. The importance can be due to the cost; its criticality, its availability and its consumption. EXISTING CLASSIFICATION SYSTEM: The existing classification system is based on its use, i.e. inventories classified as stock items and non-stock items. The list and amounts of stock and non stock items is described in AnnexureThe existing system keeps strict control on the item that are of recurring nature. It takes in to consideration only the amount use of quantity not in value. While for non-stock item low control is being kept. This system has following shortcomings. The classification gives importance to only those items, which are of recurring natures. It excludes from the control point of view the items that are high value in stock. It considers the quantity used not the money value of the material used. Control kept on stock items a give equal weightage to all items, which neglects the benefit of selective control technique.

44

Considering the practical use of classification techniques, two important methods are suggested as follow. (1) ABC classification and (2) VED classification

ABC CLASSIFICATION: ABC classification is a basic analytical Management tools which enables top Management to direct their effort where the result will be maximum. This technique properly knocks as ALWAYS BETTER CONTROL has universal application in many areas of human endeavor. The technique tries to analyze the distribution of any characteristic by money value of importance in orders to determine its priority. In materials Management, this technique has been applied in areas needing selective control. Such as Inventory critically of items, obsolence. Stock purchases order, receipt of materials, inspection, storekeeper and billing verification. ADVANTAGES OF ABC CLASSIFICATION: This approach helps the material manager to exercise selective control and focus his attention only on a few items. When he is dealing with lacs of store items. ABC analysis has to be reported to equal extension to A, B and C items will not worth while and would be very expensive. Concentrating on all items it is likely to have diffused effect irrespective of the priorities. It provides a sound basis on which to allocate funds and time of personnel with respect to their importance of the individual items. TECHNIQUES OF ABC CLASSIFICATION: The techniques of classifying the items into A, B and C categories as described in the following steps: (1) Classify the items of inventories, determining the expected use in units and the price per unit for each item.

45

(2) Determining the total value of each item by multiplying the expected units by its units price. (3) Rank the items in accordance with the total value, giving first rank to the item with highest total value and so on. (4) Compute the ratios (percentage) of number of units of each item to total units of all items and the ratio to total of each item to total value of all items. (5) Combine items on the basis of their relative value to form three categories A, B and C.

PURPOSE OF ABC CLASSIFICATION The object of carrying out ABC classification is to develop policy guidelines for selective control. Normally, once A.B.C.classification has been done the following broad policy guidelines can be established in respect of each category. EXHIBIT 1.1 Sr.No A-ITEMS . 1. Very strict control 2. No safety stock 3. Frequent ordering or weekly deliveries 4. Weekly control statements 5. Maximum follow up and expediting 6. 7. 8. Strict value analysis As many sources as possible for each item Accounts forecast in material planning Minimization of waste obsolete and B-ITEMS Moderate control Low safety stock Once in four months Monthly reports Periodic follow up C-ITEMS Low control High safety stock Bulk ordering once in six months Quarterly control reports Follow up and expediting exceptional cases Minimum value analysis Two reliable sources for each items Rough estimate for planning

9.

Moderate value analysis Two or more reliable sources Estimate based on past data on present plan Quarterly control Annual reviews over over surplus and surplus and obsolete
46

10. 11. 12. 13.

surplus(review every 15 days) Individual posting Central purchasing and storage Maximum efforts to reduce lead time Must be handled by senior officers

obsolete items Small group posting Combination purchasing Moderate

items

Group posting Decentralized purchasing Minimum clerical efforts Can be handled by Can be fully delegated middle Management

SUGGESTED SYSTEM: The scientific method of ABC classification has been used in this study about which a brief introduction has been given in the previous pages. (Exhibit 1.1) The main task here was to determine the demarcation line between A.B.& C items. For this purpose first of all items were arranged by rupee annual consumption in descending sequence, starting at the top of the list running total of item by item rupee consumption value was computed, and finally the cumulative percentage for the item count and cumulate annual usage value were computed. All A, B, C types of item were listed out. The sample of 29 items (material group wise) have been taken for the A.B.C classifications SR. MATERIAL NO.OF DESCRIPTIONS VALUES NO. GROUP NO ITEMS CONSUMPTION (UNITS) (RS) 1. 10 11 Abrasives 51000 2. 3. 4. 5. 6. 7. 8. 9. 10. 11 27 35 29 42 09 15 20 37 45 1 2 45 88 31 1 4 39 Tools and Ndt Instruments General Fire Fighting and Safety Catalyst/Chemicals/Resins Stationary/Furniture Welding electrodes and spares pipe fittings I.B.R Pipe and Flanges non-I.B.R. Civil constructions 25700 2000 63000 1042000 1542000 478000 35000 5000 198000

47

11. 12 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24 25. 26. 27. 28 29.

92 01 07 92 25 13 04 24 49 02 31 21 38 19 05 12 25 14 30

5 379 372 15 07 59 141 200 41 80 15 11 01 89 09 10 11 37 30

Mobile equipments Rollin Bearings Gasket/packing/o-ring

and

202000 4189000 3143998 63000 286000 4682000 366000 1835000 928000 179000 1008000 457000

Mobile equipments & Rollin Cable Metals(ferrous0 Fasteners Electrical/General Misc.items 49 group CP/NG/oil mech-seal,Ve-belt Paints/oil/lube/gas Valves non I.B.R Bags/bagging containers/cot Pipe & pipe fittings Elastomer/Plastic Cable(powers & control) Metals (non ferrous) Lab equipments &

357000 839000 29000 357000 33000 301000 101000 23028998

Hardware(others fasteners)

Main Group Item 13

Units 59

% of total 3.32

Cumulative

Unit price in Rs. 79355.93

48

01 07 24 42 29 31 49 19 09 21 04 38 12 14 25 11 92 37 02 30 35 92 10 15 25 05 20 27

379 372 200 88 45 15 41 89 31 11 141 01 10 37 07 45 05 39 80 30 15 11 01 11 09 04 01 1779

21.30 20.91 11.24 65.09 4.95 2.53 0.84 2.30 5.00 1.74 0.63 7.93 - 20.29 0.06 0.56 2.08 0.39 2.53 0.28 2.19 4.50 1.69 99.99 (100) 0.84 0.62 0.06 0.62 0.50 0.22 0.06 85.38 65.09

11052.77 8451.61 9175.00 17522.73 23155.55 67200.00 22634.15 9426.97 15419.35 41545.45 2595.74 357000.00 35700.00 8135.13 40857.14 5711.11 40400.00 5076.92 2237.50 3366.67 31500.00 42000.00 4636.36 35000.00 3000.00 3222.22 1250.00 2000.00

02 0.11 - 14.61

Total cost consumption(Rs) 4682000

% of Total 20.33

Cumulative

49

4189000

18.19

50

3143000

7.97 75.73-A

75.73

51

1542000 1042000 1008000 928000 839000 478000 457000 366000 357000 357000 301000 286000 257000 202000 198000 179000 101000 63000 63000 51000 35000 33000 29000 5000 2000 0.27 1.59

6.69 4.52 4.38 4.03 3.64 2.07 1.98 17.72-B 1.55 1.55 1.31 1.24 1.11 0.88 0.86 0.78 0.44 6.52-C 0.27 0.22 0.15 0.14 0.13 0.02 0.01 99.97(100) 93.45

52

Graphical Representation of ABC Analysis:

100 90 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Item - A Item - B Item - C
Percentage of Cost

The tabular & graphic presentations indicate that item forms a minimum, preparation 65.09 percent of total units of all items. But represents the higher value 75.73 percent. On the other hand, item C represents 14.61 percent of the total units and only 6.52 percent of the total value item B occupies 20.29 percent of the total units and 17.72 percent of the total value. Items A and B jointly represent 85.38 percent of the total units and 93.45 percent of the investment. Item C representing merely 6.52 percent of the investment. Thus a tightest control should be exercised on item A in order in maximum profitability on its investment. In case of item B Medium control and in case of item C simple controls will be sufficient.

53

VED CLASSIFICATION The Ved classification is applicable largely to spare parts. Stocking of spare parts will be based on strategies different from those for raw materials, because their consumption pattern is different, while the consumption of raw materials depends directly on the market demand on production the demand for spare parts depends on the performance of the plant and machinery. Therefore, the method of classification designed for one type of Inventory will not be compatible for selective control of another type of Inventory to over come this draw back the VED classification is used. Spares are classified as vital, essential desirable. This implies that V classes of spares have to be stocked adequately to ensure the operation of the pant, because by definition the non-availability of vital spares can cause havoc and stop the wheels of the organization. Some risk can be taken in the case of E class of spares. Stocking of desirable spares can be even done if the lead-time for their procurement is law. It is essential that this classification be done by technical department or by those in charge of the maintenance of the plant. This classification will be very useful to KRIBHCO if it is implemented. Moreover, ABC and VED classification can be a combined advantage, in order to control the stocking of spare parts. The control action for the class AV, BE, CD, etc are given in exhibit No. 2.1

54

EXHIBIT NO 2.1 CLASSES A Items V ITEM E ITEM Constant control Moderate stock & regular follow up Moderate stock Moderate stock High Stocks Moderate stock D ITEM Nil stock

B Items C Items

Very low stock Low stock

ECONOMIC ORDER QUANTITY (E.O.Q) Order quantity is defined as the quantity or its rupee equivalent for which fresh order of an Inventory item is placed. The decision regarding order quantity of various Inventory items is of vital importance in the Management of the Inventory item for which total of two types of cost opposing each other will be the minimum at this level, the sum of all cost of one type is exactly equal to the sum of all the cost of the other type. Thus quantity is often referred to as economic order quantity, for the purchase. Purchase item and economic lot size for production item. DETERMINATION OF EOQ: The economic order quantity can be determined with the help of the following formula. ____ EOQ = 2AB CI Where, A = Annual usage in units B = Order (buying) cost per order C = Unit cost of material I = Inventory carrying cost. DETERMINATION OF CARRYING COST: a) Obsolescence Nil b) Deterioration Negligible c) Taxes Nil d) Insurance 1% average e) Interest on capital - 18% Total carrying cost 19%

55

Average Inventory = Opening Stock + Closing Stock 2 = 1079.51 +13.886.44 2 = 24595.95 2 = 12297.97 lacs Average carrying cost = 122297.97 x 19 100 = Rs. 2336.61 lacs per year DETERMINATION OF ORDERING COST : COMMUNICATION COST : Includes, telephone, telex and Telegram cost and postage cost. Rs.9517195.28 year ended 31st March 2001. TRAVELING COST : Rs.982134385.00 year ended 31st March 2001. STATIONERY COST : Rs. 4316815.26 year ended 31st March 2001. SALARY OF PURCHASE DEPARTMENT : Rs. 82892/- per month Therefore 82892 x 12 = Rs. 994704 per year

Total ordering cost = 9517195.28 + 982134385.00 +4316815.26 +994704.00 -----------------------= 996963099.40 -----------------------Average ordering cost per order 996963099.40 80000 = Rs. 12462.00

56

ECONOMIC ORDER QUANTITY : With taken into consideration the above EOQ formula, ordering cost and carrying cost the table 3.1 and 3.2 represents the economic order quantity for item A and itemB respectively.

ITEM A Main Group Annual usage units Unit Price Rs.

TABLE 3.1 Total cost consum ption Rs. 4682000 4189000 3143998 1835000 1542000 1042000 1008000 Orderin g cost per order 12462 12462 12462 12462 12462 12462 12462 Carryin EOQ g cost Units per order. 19% 19% 19% 19% 19% 19% 19% 9.87 67.80 75.98 53.47 25.67 15.96 5.41

13 01 07 24 42 29 31 ITEM B Main Grou p 49 19 09 21 04 38 12 14

59 379 372 200 88 45 15

79355.93 11052.77 8451.61 9175.00 17522.73 23155.55 67200.00

TABLE 3.2 Annual Usage Units 41 89 31 11 141 01 10 37 Unit Price Rs. Total Cost Consumpt ion Rs. Orderin g Cost Per Order 928000 12462 839000 478000 457000 366000 357000 357000 301000 12462 12462 12462 12462 12462 12462 12462 Carrying Cost Per Order 19% 19% 19% 19% 19% 19% 19% 19% EOQ Units

22634.15 9426.27 15419.35 41545.45 2595.74 357000.0 0 35700.00 8135.13

15.41 35.19 16.23 5.89 84.41 0.60 6.06 24.42

57

58

DETERMINATION OF INVENTORY LEVELS: The Inventory level concept considers store keeping as profit intensive service to production. Store keeping should contribute directly to profitability and be concerned with such matter as flow, lead time storage cost, acquisition cost, material handling, preservation, packaging and dispatches. In the same way that specification is related to technical needs, so, general level of stock should be related to the sales and production policies of the company. There are various levels of stock, which are established by the KRIBHCO, is as follows. MINIMUM STOCK LEVEL : This is the level at which any further demands upon the bill will necessary withdrawals from the reserve stock. The minimum stock is converted to meet exceptional conditions of demand. Two months usage (consumption) of material (stocks) taken into consideration by the KRIBHCO as a minimum stock level. MAXIMUM LEVEL : This is the level above which the stock should not be permitted to raise. Eighteen months consumption of stocks (material) taken into consideration by the KRIBHCO as a maximum stock level.

RE ORDER LEVEL : The point of which the order has to be placed. The reorder level may not always be numerically equal to the economic order quantity. It should be regularly reviewed for paid moving items. For fast factors as change in demand, delivery times or variation in trend. Eight months consumption of stocks (material) taken into consideration by the KRIBHCO as a reorder level.
59

To justify these different kinds of level in December 1985 with the codification system, KRIBHCO established Inventory cells. KRIBHCO also appointed four export of the USAGE OF MATERIAL STOCK IN THE USER DEPARTMENT. Based on their experience and consumption of material stock within the four years, from the year 1989 these different types of stock levels are established. The table 4.1, 4.2, 4.3, represents the minimum, re-order and maximum level for item A,B and C respectively. ITEM A TABLE 4.1 Main Group Usage of Minimum Re-order Maximum stock in level Units Level Units Level Units Units Annually 13 59 9.84 39.33 88.49 01 07 24 42 29 31 379 372 200 88 45 15 63.17 62.00 33.33 14.67 7.50 2.50 252.67 248.00 133.33 58.67 30.00 10.00 568.49 558.00 299.99 131.99 67.50 22.50

60

ITEM B Main Group Usage of stock in Units Annually 41 89 31 11 141 01 10 37 TABLE-4.2 Minimum Level Units Re-order Level Units Maximum Level Units

49 19 09 21 04 38 12 14

6.83 14.83 5.17 1.83 23.50 0.17 1.67 6.17

27.33 59.33 20.67 7.33 94.00 0.67 6.67 24.67

61.50 133.49 46.49 16.49 211.15 1.49 14.99 55.49

ITEM C Main Group Usage of Stock in Units Annually 07 45 05 39 80 30 02 15 11 01 11 09 04 TABLE 4.3 Minimum Level Units Re-order Level Units Maximum Level Units

25 11 92 37 02 30 35 92 10 15 25 05 20

1.17 7.5 0.83 6.50 13.33 5.00 0.33 2.50 1.83 0.16 1.83 1.50 0.67

4.67 30.00 3.33 26.00 53.33 20.00 1.33 10.00 7.33 0.67 7.33 6.00 2.67

10.49 67.50 7.49 58.5 119.99 45.00 2.99 22.50 16.49 1.49 16.49 13.50 5.99

61

27

01

0.17

0.67

1.49

COMPOSTION OF INVENTORY (As on 25th dec.200) Inventory Inventory (Ammonia) Inventory General Stores Inventory tools Inventory empty beg Inventory Steel Inventory cement Inventory Spares Inventory finished foods Other (under inspection & Disposable surplus) Total

Sr.No. 1. 2. 3. 4. 5. 6. 7. 8. 9.

In Percentage 00.038 33.620 00.950 02.065 04.490 01.660 43.000 00.00733 14.170 100.000

62

Importance of Lead Time in Inventory control

There is a direct relationship between the lead-time and Inventory holding of the company. During the lead period cycle, there will be no delivery of items and consuming department will have to be served from the inventories held. The greater the period the greater will be the inventories held. If the inventories pile-up, the precious funds of companies are blocked. In order to control the Inventory it is imperative on part of Inventory personnel to carry out the analysis of lead period of various items required in the organization. Lead time Analysis : It is a systematic study of the time taken in each element of activity involved in procurement of an item beginning from the need felt to the receipt of material for use i.e. the time taken to get the MPR approved and passed to Purchase department, time taken between the receipt of MPR in Purchase to the date of placement of order, time taken by supplier to ship after receipt of order, time taken in transportation and time taken in receiving and inspection till it is finally available for use. Like any other analysis, we have to collect the data for various activities. The data in lead-time analysis will be the various dates of beginning and end of activities. This will reflect the time taken in each activity. By ascertaining the time of each activity, we can thoroughly examine the same and can analyze where the delay has taken place. The reasons for the delay can be found out and suitable recommendations made to the Management for taking appropriate corrective measures. Lead Time/Lead Period : In an organization, we normally experience that there is a time gap between the realization of demand (indenting) and the fulfillment i.e. supply of materials. This finite time interval between the cycle of indenting and actual procurement of material is called lead time or lead period. Lead Period = Realization of demand/need (Indenting) To
63

(Supply of materials for consumption i.e. fulfillment of demand Lead time varies from a few hours or days in case of local purchase to months or years in case of imports or long Management system, right from realization of the need (indenting), placement of order, delivery by suppliers, shipping, transport, receipt and inspection of materials etc. Lead-time is generally mentioned in calendar days, weeks, months etc. Total lead period can also be further sub-divided into following four elements of time/phase. The time spent on each four phases will vary from item to item and company to company. To get a closer picture, various elements of lead period are elaborated below : Elements (sub-division) of lead period: Administrative Lead-Time of buyers organization. Manufacturing Lead-time of the supplier. Transit Lead-time. Internal clearing time and inspection time.

Administrative Lead time of the buyers organization: This can be termed as the period between the indenting and placement of order on the suppliers. There are two major activities involved in the administrative lead period indenting the requirement and the placement of order. These two activities can be further split into subactivities, which occur during the time phase of administrative lead period.

Activities in Administrative lead period phase : -Materials requirement indenting/raising indents. -Registration of indent in purchase department. -Location of supply sources/issue of tender Enquiry. -Opening of tenders/preparation of comparative statements.

64

-Technical evaluation of offers and clarifications from vendors. -Commercial evaluation of offers/negotiations if required. -Financial concurrence and administrative approval of competent authority. -Placement of order. -Order acknowledgment. In any material procurement activity, the first step is to identify the material requirement of materials for future need based on sales forecast. This is generally computed (calculated) for quarterly, half-yearly or yearly period basis. After assessment of the material requirement of various item i.e. raw materials, regular production items, consumables etc. indents are sent to the purchasing department for initiating procurement action. In KRIBHCO, items are mostly required for maintenance of various plants and other off-site facilities. We have divided total items in two category mainly stock items and non-stock items. Stock items are those items, which are regularly required for a particular plant, equipment or a specific job, and respective departments raise indents for these items. The average time taken to convert an indent into an order is about 3-4 months for regular items and for new items it may vary from 4-5 months. The internal lead-time varies from organization to organization and most of it is well within the control of organization. It should be kept as minimum as possible to have a substantial impact in controlling the inventories. The lesser the administrative lead period, the lesser will be the safety stock and reorder quantity thus reducing the size of inventories, which will ultimately get reflected in profitability of the company. Effective coordination by materials department with other departments of the organization is an essential feature to achieve this objective. Manufacturing Lead time of suppliers : There is always a time interval involved between the placement of order and the actual delivery made by the suppliers. The purchaser has to

65

wait till the supplier has delivered the goods. The supplier has to take manufacturing time for the production of ordered items in his plant. This time period taken by the supplier is called manufacturing/delivery lead-time of supplier. This factor is an external one and is entirely controlled by the supplier. Purchaser has to expedite vigorously to ensure that the supplies are made well within the contractual delivery period and unwanted delays are avoided. Though the external lead period of supplier is normally beyond the control of purchaser, yet to some extent this can be control by vigorous follow-up and /by developing alternate source of supply and generating healthy competition. This lead period depends upon the nature of item, its availability etc. the market and the reliability of the supplier. Procurement lead period can also be reduced while negotiating with the supplier. Transit Lead Time : Transit Lead-Time is a period, which is taken for the transportation of material from the suppliers works to the purchasers site . It depends upon the mode of transport selected and the cost and the speed of transport . A selection of mode depends upon the urgency of the requirement of the purchaser and cost considerations. Formalities like insurance, retirement of documents from Bank etc. are also indirectly involved in this activity before the material is received physically at the purchasers site. These activities should be undertaken in parallel so that the materials should be cleared quickly on its arrival at the destination point without levy of demurrage and wharfage. Internal clearance and inspection lead-time : The time taken to take delivery from transporters godown, a railway, opening of packages is called internal clearance time. Receipt and inspection time is also part of internal lead-time of an organization, which occurs after the receipt of goods. Inspection lead-time has been mentioned separately because it may take substantial time, in few cases before the material is finally accepted for use. It is always desirable to reduce this lead period and inspect the goods promptly on their arrival. Material personnel should effectively co-ordinate with the users for prompt inspection. Special care has to be taken for the items, which are rejected during the inspection for the replacement supply will further increase.

66

SUGGESTIONS
Considering all the situation discussed above following points should be taken in to consideration for the effective Inventory Management. The production planning should be done according to the demand so that there should not be over stock during off-season and stock out during the season. The investment in stores and spare parts Inventory should be kept as law as possible, considering demand of stores and spare parts.

67

SUMMARY AND RECOMMENDATIONS

Summary: The concept of total Inventory control is the main consideration of this study. The inventories constitute major portion of finished product and any reduction in Inventory cost each stage, like, purchase, storage and issue etc. contributes direct to the profit of the company. To contribute and improve the existing system of Inventory Management. Various areas of Inventory Management were studied, analyzed evaluated taking in to consideration the scientific approach. The areas of study were. (a) Purchase system. (b) Ware house control and (c) Use of various Inventory control techniques etc. The study has been concluded with following recommendation.

RECOMMENDATIONS : (1) Sales should be correctly forecasted. (2) Forecasting of production schedule should be properly done to assist in efficient purchasing and investment in materials and for controlling production Inventory. (3) Suitable procedure should be laid down to guide manages in performance evaluation and decision making. (4) Following techniques should be implemented for efficient Inventory control ABC and VED classification. Establishment of system of budget.

68

 Use of perpetual Inventory records and continuous stock verification. Economic order quantity. Provisioning and purchase procedure. Review of slow and non-moving items. A computerized system should be used for maintenance of Inventory records and EOQ etc. The specific factors leading to excessive stocking in the company should be critically examined.

69

ANNEXURE 1
SCHEDULE OF SUB-DELEGATION OF FINANCIAL POWERS: Nature of Indents (1)Approval of indents 1.1Normal stores stock items a) General Manager b) Departmental Manager 1.2 Non stock or restricted issue items a) General Manager b) Departmental Manager 1.3 Service Contracts a) General Manager b) Departmental Manager 1.4 Capital Items a) General Manager 2. Calling for tender 2.1 Open tender a) General Manager b) Material Manager 2.2 Limited Tender a) General Manager b) Material manager 2.3 single Tender a) General Manager b) Material Manager 3.Acceptance of tender 3.1 Opening tender a) General Manager b) Material Manager Extend of Powers Remarks

Full power Upto Rs. 2 lac in each case

Full power Upto Rs. 50000/- in each cases. Full power Rs. 50000/- in each cases. Full powers

Full powers Full power for item up to Rs. 2 lac in each cases. Full powers Full power for items valuing up to Rs. 1 lac Full power Upto Rs. 25000/- in each case

Up to Rs. 10 Lac in each case Upto Rs. 50000/- in each case Up to Rs. 10 lacs reasons to be recorded for not calling
70

3.2 Limited tender a) General Manager b) Materials Manager

(i)

Normal stock items (ii) Non-stock items c) Supdt. (Purchase) Purchase office 3.3 single tender a. General Manager b. Material Manager 3.4Proprietary items a) General Manager b) Material Manager c) Suptd. (purchase) 4. Purchase control at controlled rates and analyzed through public sector agencies including purchase against DGS & D. a. General Manager b. Material Manager c. Suptd. (Purchase) d. General Manager 5. Emergency Purchase through personal inquiry a. General Manager 6. Cash Purchase

tender Up to Rs. 50000/- in each cases Upto Rs. 25000/- in each cases Upto Rs.10000/- in each cases Upto Rs. 2 lacs in each case Upto Rs.25000/- in each case

Upto Rs. 10 lacs in each case Upto Rs. 50000/- in each case Upto Rs.10000/- in each case

Up to Rs. 10 lack in each case Upto Rs.2 lack in each case Upto Rs. 50000/- in each case Full power for purchase of Naphtha

Upto Rs. 1 lac in each case

71

a. General Manager

Rs.2500/- on each case. Total not to exceed 3:5 lacs per year Rs. 500/- in each case

b. Dy. Manager 7. Repair to Staff Cars/Jeeps/Buses/Am bulance/Truck etc. a. Manager Full power total not to (Maintenance) exceed Rs. 4000/- per year for vehicle. 8. Nature of power a. Supdt. (Mech. Rs. 500/- in each case. Services) 9. Purchase Commitments (in excess of provision in the annual budget) Excess up to 20% of budget a. General Manager allotment for the individual items provided and approved budget main head is not exceed by more than 5% 10. In absences of provision in the annual budget For items of petty nature a) General Rs. 1000/- in each case manager provided total sanction in the year would not exceed is 10000/11. Amendment to purchase order & Contract 11.1 where price is Full power effected Full power a. General Manager b. Material Manager 12. Where price is + 10% original

All such cases to be reported to M.D.

These are subject to the overall. Limits given in 3 above.

Increased in

72

effected a. General Manager

b. Material Manager

contact/purchase order price purchases or Rs. 1 lac whichever is order/contra more. ct value to be allowed +5% of the original contract Only this will (Purchase order for Rs. not cause 5000/- whichever is more) the approval budget main head to exceed by 5% of Full powers within his delegated powers and above Rs. 1 lac with the approval of M.D. Upto Rs. 50000/- in each case.

13. Signing Purchase Orders/Contract a. General Manager

b. Materials Manager supdt. (Purchase) purchase officer

73

ANNEXURE 2 KRISHAK BHARTI CO-OPERATIVE LIMITED, HAZIRA PROJECT SURAT LIST OF PRIMARY GROUPS (I & II DIGIT) Primary Group 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Designation Bearing Coupling and mechanical seal ( V Belt) Fasteners Gaskets and packing Welding material and equipment Abrasives Tools Elastomer/Plastic (inc. house) Metal (Ferrous) Metal (Non ferrous) Pipe and Pipe fittings I.B.R. Flanges I.B.R. Values (other than control solenoid/relief) IBR Tubes IBR Pipe and Pipe fitting non IBR Flanges non IBR Valves (other than control solenoid) non IBR Tubes non IBR Electrical general stores (other than cable) Cable (power and control) Instrument General stores Mechanical items Chemical, catalyst and water treatment resins Lab equipments Pints, oil, lubricants, fuel and gases Round rolled bars Insulation and refractory Fire fighting & safety

74

36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77

Civil construction materials Bag , bagging materials & containers Liveries & protective clothing Furniture furnishing canteen stationary Medicine/medical items Project/new scheme items Regularized items Consumable stores(other than those elsewhere) D.C. equipment (other than motors) Electrical instruments & relays Generator Flame proof LGT &ACC Battery charges , Ups Motors M.C.C Industrial Heaters Switch gear Telephone exchange items Transformer DCS/PLC/PC/DATA/OGR Analyzers Pneumatic instruments Control valve Flow instruments Temperature instruments Pressure instruments Level instruments Vibration instruments Elect. Weighing inst. Receiving stations Electronic instruments Transmitters included

horticulture

&

75

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99

Instrument electronics Testing equipment Relief value / require disc. Compressors, turbines, fans & blowers Conveyors & evaluation Exchangers Engines Furnace & boilers Gear box (other than compressor gears) Material handling equipments conveyors & elevator) Mobile equipments & rolling stock (other than

Pumps & ejectors Surplus items of coal handling Vessels & tanks Special equipment

76

BIBLOGRAPHY

Kothari.C.R , Research Methodology, New Delhi, Wishwa Prakashan, 2nd edition,1990. 2) Menon .K.S , Stores Management, Bombay, Mcmillan India Ltd,1st edition,1983. 3) Other Reports belonging to M/s. KRIBHCO from their own Technical Library
1)

77