Professional Documents
Culture Documents
INTRODUCTION
business of oil refining and marketing and Mittal Energy Investment Pte Ltd,
Singapore - a Lakshmi N Mittal Group Company. Both the JV partners hold a stake of
49% each in the company, the rest 2% is held by financial institutions. HMEL is
The refinery will produce petroleum products complying with Euro IV emission norms
with Captive Power Plant for 165 MW and Crude Oil pipeline from Mundra (Gujarat) to
Bathinda with Single Point Mooring (SPM) and Crude Oil terminal at Mundra.
To build and operate best in class petroleum refinery using state of the art technologies
to ensure protection of the environment, health and safety of the community. The
stakeholder aspirations, caring for its employees and complying with government laws
and regulations.
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HMEL shall plan, design, construct, commission and operate an energy efficient and
infrastructure facilities. The company shall endeavor to achieve excellence in all aspects
The Guru Gobind Singh Refinery will be a zero bottoms, energy efficient, environment-
friendly, high distillate yielding complex refinery that will be producing clean fuels and
polypropylene by processing heavy, sour and acidic crudes.As part of this project, the
• Cross-country Crude Oil Pipeline (approx. 1014 km) from Mundra to Bathinda
• Crude receipt facilities - Single Point Mooring ( SPM) buoy capable of handling
Very Large Crude Carriers (VLCC) for crude import located at Mundra, Gujarat,
India.
• Crude Oil Terminal (COT) approximately six kms. away from the sea shore at
Mundra, Gujarat.
• Captive Power Plant of 165 MW for refinery power and steam requirements.
The refinery will be a world class, state of the art refinery incorporating the latest
technologies enabling it to excel the current specifications available in the country. The
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refinery configuration has been developed after extensive linear programming, keeping
the domestic and regional requirements in mind, the latest cost effective technologies
available for generating required fuel specifications, and future changes. The present
configuration translates into one of the highest Nelson Indexes* for the refinery amongst
This refinery is the single largest investment at any location in Punjab and is the first Oil
and Gas industry being set up in Punjab. The Refinery is expected to create a large
number of jobs directly and indirectly in the region, which will lead to industrialization
business related to crude oil receipt, its storage and cross-country transportation. Mundra
- Bathinda Pipeline Project is implemented by the Company for transporting crude oil
from Mundra Gujarat to HMEL’s Guru Gobind Singh Refinery at Bathinda, Punjab.
The project consists of the following facilities being set up to meet its objective:
• Single Point Mooring System (SPM), 10 kms from the shore in the Gulf of Kutch
kms onshore section to transfer the crude oil from the SPM to the Crude Oil
Terminal (COT).
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• A Crude Oil Terminal (COT) approximately 6 kms away from the sea shore, of
route passes through the coastal plains & saline mud flats of Rann of Kutch in
Gujarat, dry cultivation fields & eastern fringe of Thar Desert in Rajasthan and
Ghagghar Flood Plains in Haryana - crossing 24 rivers and 51 canals along the
• An Optical Fibre Cable (OFC) is being laid alongside the pipeline for
telecommunication and data transfer between all the stations along the route of
the pipeline.
COT for treating all the effluent generated at the dispatch terminal before release.
Moreover, a 30 m wide belt around the COT and up to 25% of land for all intermediate
A Disaster Control and Management Plan is being developed to control and manage any
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CEO
Head Of Head
Head Of Of
Finance Head Of Market
Procure-
COO ment Project & Acc. Treasury -ing
(V.P.)
Opera-
Process Engg. IT Mainte- Project Requisi-
tions Security
SPM
(V.P.) (GM) (CM) nance Purchase vendor Control tion
(V.P.)
General
Head Work
IT
SAP Office Site
Service
1.3 OBJECTIVES:
Refinery Project,Bathinda.
6
1.4 SCOPE OF STUDY
This entire project will revolve around the procurement process occurring at Guru
Gobind Singh Refinery Project which is carried out by HMEL. Materials management
• The scope of study will include understanding the procurement activities that
• The study will cover the steps involved in the procurement of materials in the
• This project will try to study the business process involved in the procurement
Bathinda by HMEL.
• This project will also include small overview of business process involved in the
Refinery, Bathinda.
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CHAPTER 2:
THEORITICAL
FRAMEWORK AND
REVIEW OF
LITERATURE
8
OVERVIEW OF MATERIALS MANAGEMENT
files.The Material Master and Vendor Master data files are at the core of
The material master record is the main source of material-specific data in an enterprise.
The material master contains information of all the materials that a company procures,
produces, stores, and sells. It is the company's central source for retrieving material-
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specific data. This information is stored in individual material master records. The
material master is the central pool of information where material specifications are
entered only once and same item code can be used repetitively as and when required.
The integration of all material data in a single database object eliminates redundant data
(functions). Each user department has a different view of the material master record and
You can assign materials with the same characteristics to the same material type.
Material types include raw materials, semi-finished products, and finished products, for
example.
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2.1.2 VENDOR MASTER
The vendor master contains information of all the vendors that a company has business
relationship for procurement of materials, for providing service, for transportation, for
payments etc. It is the company's central source for retrieving vendor specific data. This
• General Data: The data is valid for whole client i.e. in our case HMEL. It
includes the PO currency, Price basis, Partner data, excise, customs and
The vendors can be categorized as: Material Vendors, Service Vendors, Transporters,
Finance/Term Loan vendors, Government statutory bodies, Own Plants and group
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Fig. iv) Vendor Master Record
2.2 PURCHASING
You can incorporate Purchasing into the company structure by assigning the purchasing
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The Purchasing Group can be defined as a person or group of people dealing with
Purchase Info record consists of information specific to a material and a vendor. This
The purchasing information record is used in the purchase order where information from
the record is defaulted into the purchase order. Information such as purchasing group,
net price, invoice verification indicators and delivery tolerances all can be entered into
There are four categories of purchase info records that can be created. These are:
• Pipeline Info Record : Pipeline materials such as electricity, water, oil etc are
combination.
customer’s site for customer withdrawal, the purchasing department can create a
• Subcontracting Info Record: This type of info record is created when the order
is a subcontracting order.
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2.2.2 PURCHASE REQUISITION(PR)
The purchase requisition is the procedure by which general users or departments can
request the purchases of goods or services that require processing by the purchasing
department.
delivery date, account number and the amount of money that the purchasing department
is authorized to spend for the goods or services. Often, the names of suggested supply
changed by the purchasing department without obtaining approval from the originating
department. A purchase requisition is not a purchase order and therefore should never be
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Purchase requisitions can be created:
– Manually
– Automatically:
1.Planning Function(MRP,MPS)
2.Production Orders
3. Sales Orders
Once the PR has been received and has been processed by the purchasing
department, there may arise a need wherein the purchasing department offers a
request for quotation (RFQ).An RFQ typically involves more than the price per item.
Information like payment terms, quality level per item or contract length are possible
items/services to make sure all the suppliers are bidding on the same item/service.
Logically, the more detailed the specifications, the more accurate the quote will be
and comparable to the other suppliers. The suppliers have to return the bidding by a
An RFQ allows different contractors to provide a quotation, among which the best
will be selected. This need may arise because of a number of reasons as:
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b. Material being used but has no particular identified vendor.
2.2.4 CONTRACTS
A contract is an agreement between the vendor and customer for the vendor to
supply material to the customer at an agreed price over a specified period of time.
a. Quantity Contract – As the name suggests this contract allows the purchasing
b. Value Contract --- A value contract allows a purchasing department to cap the
spending with one particular vendor. The value contract is not concerned with the
quantity of material supplied by the vendor but by the total spending with the vendor
(buyer) to a vendor (seller), indicating the materials, quantities and negotiated prices
for materials or services that the seller will provide to the buyer.
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and seller so no contract exists until the PO is accepted. POs usually specify terms of
payment, incoterms for liability and freight responsibility, and required delivery
date.
The Inventory Management process within SAP corresponds to movements inside the
plant that can create a change in stock levels within the storage location designated to
that plant. The movement of stock is either inbound from a vendor, outbound to a
For every goods movement two types of documents are created in SAP:
1. Material Document
2. Accounting Document
The accounting document describes the financial aspects of goods movement and is
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• Numbers of orders should be such that ordering cost also is reduced.
• Know the trend of ups and down in production items, quantity and
• Assembly needs, variety/ various items, see that purchase and availability
in ‘Sets’ required
• Keep minimum stock of high value items and monitor their price trend.
Goods receipt process allows the receipt of material from a vendor or from in-house
production process. A goods receipt is an increase in stock that is triggered because of:
You can post goods receipts from vendors to quality inspection stock for the
following reasons:
• If the material always has to undergo quality inspection before it is used. In this
case, the employee responsible for the purchasing data in the material master
record sets the quality inspection indicator in the material master record. When
you order the material, the indicator is copied to the purchase order.
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• If the material is received from a particular vendor and has to undergo quality
inspection first. For example, you must always test the quality of goods if they
• If you decide at the time of goods receipt that the material has to undergo quality
inspection, for example, because you established that the packaging is damaged
and suspect that the goods were also damaged during transportation. You then set
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20
Fig. v) Goods Receipts
• Return of material.
• Material Scrapping
These are the movement types that identify the various goods issue.
A stock transfer can occur physically , for example by moving material from one storage
unrestricted. Stock transfer normally refers to a physical move , while transfer posting
• Plant to Plant
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Fig. vi) Stock Transfer
accuracy are important goals for companies. Physical inventories can be customized to
produce faster and more accurate results,lowering inventory cost and improving
Physical inventory can be performed on stock that is held in unrestricted use , quality
company’s own stock and special stocks such as returnable packaging and consignment
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2.4.INVOICE VERIFICATION
The SAP system allows you to valuate stocks of a material either together or separately,
that is, according to different valuation criteria. Split valuation is necessary if, for
example:
· Stock from in-house production has a different valuation price than externally procured
stock.
· Stock obtained from one manufacturer is valuated at a different price than stock
The way the stocks of a material are valuated depends on how you define the following:
· Valuation category
(This defines whether the stocks are valuated jointly or separately. If stocks are to be
managed separately, it also specifies the criteria used to valuate the stocks, that is,
individual batches.).
· Valuation type
(This is a further subdivision of the valuation category. For example, if the valuation
category is origin, a company may want to define the valuation types stock from Los
This data is stored in the material master record. In SAP there are two ways of valuating
stock:
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i. Joint Valuation
(If you want to valuate all stocks of a material at the same price, you specify neither a
If you want to valuate stocks of a material separately, you must create a material master
record with the appropriate valuation category. This record is called the valuation header
record. Each material always has only one such record for each company code or plant
(depending on whether the material is valuated at company code level or plant level).
Once you have specified the valuation category, you can create a material master record
for each quantity of the material you want to valuate separately, with the appropriate
Invoice Verification is part of the accounts-payment process in which the vendor is paid
for materials or services that they have provided to the customer. This verification is
important as it ensures that the quantities and the pricing are all correct and neither party
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Procurement is the acquisition of appropriate goods and/or services at the best possible
total cost of ownership to meet the needs of the purchaser in terms of quality and
quantity,time&location.
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26
Fig. vii) Procurement Process
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CHAPTER 3:
BUSINESS
PROCESSES
construction for the refinery project. The items involved in Procurement process are:
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1. BOUGHT OUT ITEMS: HMEL has classified all items as Bought Out Items which
Tagged items are those that are purchased specifically for a particular Unit. Eg: CDU or
VDU. These materials are stock able and when ordered are assigned to the unit and there
consumption is entirely within the same unit for which they have been ordered. Tagged
items are mainly equipments such as columns, vessels, pumps etc and instruments such
Bulk items items which are procured in bulk feeding to multiple units and these too are
stock able. Bulk items are pipes, fittings, flanges, valves, electrical & instrumentation
cables etc.
those items that are required on a day to day basis for the working of the organization.
These items can be stock able or non stock able, Eg: stationery etc.
All the Brought-out items,i.e. tagged and non-tagged items are purchased by EIL for
construction of refinery.
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Fig. viii) Purchasing Process of Bought-out items
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Inputs Responsibilty Type of Input Category of Input Mode of
Activity / Desirable)
Process)
1.Material Requisition EIL Activity Essential Soft copy/
Physical
Document
2.Request for Quotation EIL Activity Essential Physical
Document
3.Quotation Comparison EIL/HMEL Activity Essential Physical
/Negotiations Document
Document
Material Requisition(MR) is raised for availing the supplies of Tagged and bulk items by
EIL. For Tagged items only one time MR is raised and for Bulk items MR is raised
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To facilitate the availability of materials in early phase in order to start the construction
of refinery is based on piping and instrumentation diagram, plot plan and equipment
layout. Later on when drawings are prepared and 3D modelling is done on software(PDS
Bulk materials procurement is done in several phases for continuous feeding of material
MTO system is responsible for raising the MR for procurement of bulk items.For GGSR
A Vendor List is maintained by EIL which contains the names of approved vendors. EIL
submits the Approved Vendor List(AVL) to HMEL for approval. HMEL team wherein
does the required modification of the vendor list if required. Once list is finalised,
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
All the vendors should reply back their quotations within the stipulated due date. RFQ
contains the details of requirements of the company. Details includes information like
no. of units needed, description of materials required, etc. RFQ also mention the Terms
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Interested Approved Vendor replies back to EIL by giving ACKNOWLEDEGEMENT
EIL might go for some additions in their requirements. EIL can issue ADDENDUM, if
specification required.EIL can increase the due date for submission of Quotations
accordingly.
Interested Approved Vendor should reply back to EIL with their quotations in the form
of PRICED BIDS and UNPRICED BIDS in a format specified by EIL in two separate
sealed packets.
UNPRICED BIDS contains the technical details of material without any mentioning of
price.
PRICED BIDS contains the details of proposed materials along with their unit price and
total price.
interested vendors as part of security in case of large orders. EMD is non-refundable and
retained by the company in case the selected vendor backs out later after the contract
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signing. After raising of LOA to the successful vendor, EMD deposits of all
In case of any variation in the technical specification of available material with vendor
against the proposed material then vendor should clearly specify it to EIL.
The department which has raised the Material Requisition is responsible for technical
whether they are technically fit to supply the proposed material or not.
department involved.
acceptability of vendor. Only the bids of technically qualified vendors are allowed go for
commercial evaluation.
All the technically qualified vendor’s bids go for commercial evaluation. Commercial
will be opened by the authorized persons (consisting EIL & HMEL) and the quotations
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A price comparative statement is prepared for vendors and analysed by EIL. Price
comparison process will involve the comparison of both cost price and operational cost
Vendors are arranged in the category of L1, L2, L3 and so on depending upon the prices
in their respective quotations. The lowest price quoting vendor is given category L1, the
next higher price quoting vendor is given category L2, and so on. L1 category vendors
are given preference over higher category vendors, i.e. , L2 and L3.
HMEL along with Draft LOA (Letter of Award) for the recommended vendors as per
the original quote.EIL recommendation report might contain suggestion for multiple
vendors.
Recommended vendors are invited by HMEL for further negotiation in prices. HMEL
team shall negotiate the prices further with the vendors depending upon certain terms &
conditions.
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Final comparison is done by HMEL team after the negotiations. As per DOP(Delegation
of Power), Final LOA is raised for selected vendor. The copy of the same is forwarded
to EIL.
Letter Of Award is authorisation for a particular vendor to start with their work for
making arrangements for supplies. LOA gives the details about the proposed materials.
Detailed Purchase Order is followed by LOA later contain further terms & conditions.
LOA should be accepted and acknowledged with proper vendor signature and stamp.
A draft PO is raised by EIL based on which a final PO is prepared by the HMEL team
and issued to the vendor. PO contains the complete details about the expected quantity
and final prices agreed upon by both vendor and HMEL during final negotiation
sessions.
Once the PO cycle is over a PR containing the entire details of the materials and quantity
etc is prepared and issued by EIL to the vendor with a copy to HMEL.
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10. MANUFACTURING AND DELIVERY OF MATERIAL BY VENDOR
Vendor starts the process of manufacturing the materials according to the specifications
mentioned in PO/PR. There is a frequent quality check visits done by EIL team during
the process of manufacturing of materials. Quality Assurance team of EIL checks that
the material conforms to the specifications and quality requirements of the company.
After quality checking process is over, a Certificate is issued to the vendor for quality
Vendor makes the delivery of materials according to the terms & conditions as per
purchase order.
Currently the EIL warehouse team manages the project based inventory. The legacy
receives the DAV (Dispatch advise voucher) from the vendor which is an intimation that
the vendor has dispatched the materials after the clearance of quality inspection at the
source. As per the DAV (having a unique no.) the EIL team maintains their dispatch
The EIL team prepares DRR (Daily Receipt Report), once the goods are delivered to the
premises of HMEL & are pending for physical verification.DRR report is sent daily to
HMEL & Project site as first hand report of the availability of the goods. DRR report is
linked to DAL report with reference to the DAV Unique number.DRR report provides
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reference of material quantity received.
The MRR (Material Receipt Report), is prepared by EIL only after physical verification
of material against DRR. After MRR, material is available in the stock register for
issuing.
All the physical rejection, shortage, etc is maintained through OSRD (Over short reject
& damaged) report . Purchase action is initiated for OSRD items and insurance claim is
made.
Payment terms are mentioned in PR/PO. For simple items like bulk material no detailed
bill is required as billing terms mentioned in PO\PR is sufficient. Further detailed billing
schedule is prepared for complex materials like major equipments. Detailed billing
Billing schedule consists of following heads for which billing break-up is made for
complex materials:
1.Process design
2.Detailed engineering
3.Ordering
5. Construction
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As work progresses vendors & contractors submits the monthly invoices to EIL for
verification and forwarded to HMEL for payment. Vendors and contractors are given
advanced payments for initiating the production process against the bank guarantee.
1.Direct payment: Money is transferred to the vendor and contractor directly in their
name.
iii) HMEL makes the payments to its bank according to the invoice given by the vendor.
After making the payments, Proof of payments made is generated. HMEL submits this
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HMEL carries out the procurement process for consumables items only. Consumables
are those items that are required on a day to day basis for the working of the
organization. These items can be stock able or non stock able, Eg: Office stationery, etc.
Activity / Desirable)
Process)
1.Material Requisition HMEL Activity Essential Soft copy/
Physical
Document
2.Request for Quotation HMEL Activity Essential Physical
Document
3.Quotation Comparison HMEL Activity Essential Physical
/Negotiations Document
Document
40
Fig. ix) Procurement process of consumables items
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1. LOCAL PURCHASING REQUISITION (LPR) RAISING:
Local Purchasing Requisition is raised by the concerned department upon the realisation
LPR contains the details of proposed items, description and quantity required. It might
HMEL maintains the approved vendor list for the process of selective bidding. HMEL
All interested vendors should satisfy all the norms, as stated by procurement department,
Approved Vendor List might contain single vendor or multiple vendor names for a
particular item.
Based on LPR raised, Procurement department of HMEL will identify the approved
vendors from Approved Vendor List. RFQ is floated to all the approved vendors
requesting the quotations from them. All the quotations received after the due date is
considered as invalid.
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RFQ contains the details of requirements of the company. Details includes information
like no. of units needed, description of materials required, etc. RFQ also mention the
Terms and Conditions of the order which a vendor should agree with.
CONSENT LETTER.
HMEL might go for some additions in their requirements. HMEL can issue
variation in specification required. HMEL would increase the due date for submission of
quotations accordingly.
Interested Approved Vendors should reply back to HMEL with their quotations in the
form of PRICED BIDS and UNPRICED BIDS in a format specified by HMEL in two
UNPRICED BIDS contains the technical details of material without any mentioning of
price.
PRICED BIDS contains the details of proposed materials along with their unit price and
total price.
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Earnest Money Deposit(EMD) is a deposit in monetary terms taken by HMEL from
interested vendors as part of security in case of large orders. EMD is non-refundable and
retained by the company in case the selected vendor backs out later after the contract
signing. After raising of LOA to the successful vendor, EMD deposits of all
In case of any variation in the technical specification of available material with vendor
against the proposed material then vendor should clearly specify it to HMEL.
The department which has raised the Local Purchase Requisition is responsible for
determine whether they are technically fit to supply the proposed material or not.
UNPRICED Bids are given to concerned department to analyse the technical feasibility
of project.
Only the bids of technically qualified vendors are allowed go for commercial evaluation.
All the technically qualified vendor’s bids go for commercial evaluation. Commercial
opened by the authorized persons and the quotations will be maintained for each vendor.
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PRICED Bids are analysed by the Procurement Department of HMEL for commercial
HMEL team.
Vendors are arranged in the category of L1,L2,L3 and so on depending upon the prices
in their respective quotations. The lowest price quoting vendor is given category L1, the
next higher price quoting vendor is given category L2, and so on. L1 category vendors
are usually given preference over higher category vendors, i.e. , L2 and L3.
Selected approved vendors are invited by HMEL team for final negotiations in price.
HMEL team shall negotiate the prices further with the vendors depending upon certain
Final comparison is done by HMEL team after the negotiations. After comparison
As per DOP(Delegation of Power), Final LOA is raised for selected vendor. Letter Of
Award is authorisation for a particular vendor to start with their work for making
arrangements for supplies. LOA gives the details about the proposed materials.
Detailed Purchase Order is followed by LOA later contain further terms & conditions.
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LOA should be accepted and acknowledged with proper vendor signature and stamp.
After the selection of vendor, Purchase order is prepared and given to procurement
committee for approval. After the approval of PO, it is forwarded to vendor. Upon the
reception of PO, vendor can start with the process of making the material available.
Vendor starts the process of manufacturing the materials according to the specifications
mentioned in PO. There is a frequent quality check visits done by HMEL team during
the process of manufacturing of materials. Quality Assurance team of HMEL checks that
the material conforms to the specifications and quality requirements of the company.
After quality checking process is over, a Certificate of quality assurance is issued to the
vendor.
Vendor makes the delivery of materials according to the terms & conditions agreed upon
Good Received Note (GRN) is maintained by HMEL upon the receiving of material.
Service Entry Sheet (SES) is maintained by HMEL upon availing the services from the
vendor.
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12. INVOICING AND PAYMENTS
Payment terms are mentioned in PO. For simple items like stationary items no detailed
As work progresses vendors & contractors submits the monthly invoices to EIL for
1.Direct payment: Money is transferred to the vendor and contractor directly in their
name.
iii) HMEL makes the payments to its bank according to the invoice given by the vendor.
After making the payments, Proof of payments made is generated. HMEL submits this
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Future State Business Process(FSBP) includes the business processes after the
implementation of SAP ERP solution at HMEL. All the consumable goods like
stationary and other general office requirements are procured by HMEL directly.
Purchase Requisition (PR) would be raised by the user. Based on the requisition RFQs
would be invited from the identified vendors. On receiving the quotations the price
would be updated in the system and quotation comparison would be carried out.
Negotiations would be carried out by the HMEL team with the shortlisted vendor if
required. LOA (contract) would be prepared and released after approval based on the
release strategy.
A PO would be prepared with reference to the LOA or RFQ / Quotation and would be
Terms and conditions etc. No Service Purchase order shall be made without reference to
quotation/LOA.
Source List providing the details of material and vendor combination shall be
maintained in the SAP system. If there is a single source or a source that is flagged as a
preferred vendor then the system will offer this vendor as the determined source.
However if there are a number of vendors on the source list that are valid by date
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selection, then the system will offer the selection to the purchaser. A vendor can then be
Start
Yes
Print Changed PO
Any further & send to vendor
No
change
Yes
49
Start
Change LOA No If OK
Yes
Print LOA & send
Release LOA to vendor
Print Changed
Any further LOA & send to
No vendor
change
Yes
Create PO
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Procurement Cycle
Creation of PR
Receipt of Quotations
Open
Is Technical review
Technical Yes
required ?
bid
No
Open Commercial
bids (technically
qualified vendors
only , if applicable )
Maintain Quotations
Negotaite
Yes Is negotiation required ?
with vendor
No
Print Contract /
LOA & send to
Release Contract / LOA vendor
Create PO
Goods receipt would be done in the system once they are received in the warehouse.
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Service Entry Sheet would be created by the user on execution of services.
The duly authorized hard copy of vendor Invoice shall be forwarded to Finance
department of HMEL and LIV shall be posted in the SAP system by Finance
department. Unplanned delivery costs if any would be posted in a separate line item and
GR based LIV
Start
End
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Step # Activity Responsibility Tcode Remarks
/ Authorization
Procurement Cycle
1 Create Purchase Requisition All users ME51N Create PR with all details
(quantity, specification,
suggested Vendors, if
required.
2 Change Purchase Requisition All users ME52N Change PR (addition/deletion
etc) as required.
3
Display Purchase Requisition All users ME53N Display PR
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5 Create RFQ Purchase ME41 Create RFQ with reference to
vendors.
6 Change RFQ Purchase ME42 Change RFQ (addition/deletion
required.
7 Print RFQ Purchase ME9A Print RFQ and send to the
b. Minimum value
Quotation
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10 Create LOA Purchase ME31K SAP Contract would be used as
Officer an LOA. Account assignment
category is required.
11 Change LOA Purchase ME32K If required changes would be
Officer made in the document in case
gets de released.
12 Display LOA Purchase ME33K LOA can be displayed.
Officer
Based on the release strategy
13 Release LOA Identified ME35K identified the LOA is released
Release for sending it over to the
Group vendor.
Print the LOA & send to the
14 Print / Reprint Purchase ME9K vendor. LOA can be printed
Officer only if it is in release status. In
in the system.
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15 Create Purchase Order Purchase ME21N
Create Purchase Order with
Officer
reference to the quotation,
elements etc.
Officer required
17 Release Purchase Order Purchase ME29N Release of Purchase Order as a
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be updated at this point of time
done
All Bought Out Items e.g. Major Equipments / Materials (stock & non-stock), Spares,
Process related items etc for Refinery shall be procured in the same way as being
followed today.
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
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Technical evaluation shall be done outside SAP and based on the approval for opening
commercial bids of only technically qualified vendors, commercial bids shall be opened
by the authorized persons (consisting EIL & HMEL) and the quotations shall be
Once the final vendor has been identified LOA (SAP Contract) would be prepared in
SAP and would be released according to the approval strategy agreed upon. A print out
of the LOA would be taken and issued to the vendor. A draft PO would be raised by the
EIL team outside SAP based on which a final PO would be prepared by the HMEL team
in SAP with reference to the LOA. This PO after going through a defined release
All tagged and non tagged item purchases would be under Project (WBS Element) as
category can be ‘P’ in case of materials to be charged off and ‘Q’ for materials to be
stored as the project stock.No purchase orders shall be made without reference to
quotation or LOA.
Source List providing the details of material and vendor combination shall be
maintained in the SAP system. If there is a single source or a source that is flagged as a
preferred vendor then the system will offer this vendor as the determined source.
However if there are a number of vendors on the source list that are valid by date
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selection, then the system will offer the selection to the purchaser. A vendor can then be
All materials against purchase orders shall be received & posted into the system via an
interface between SAP and WAMS (Warehouse Management System) of EIL. Material
equipment, the GR for the equipment will not be entered till the entire equipment is
received.
The duly authorized hard copy of vendor Invoice shall be forwarded to Finance
department of HMEL and LIV shall be posted in the SAP system by Finance
department. Unplanned delivery costs if any would be posted in a separate line item and
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2 Change LOA Purchase ME32K If required changes would be
Officer made in the document in case
of value change, the document
gets dereleased.
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9 Print/Reprint Purchase Order Purchase ME9F Print the PO & send to the
Officer vendor. PO can be printed only
if it is in release status. In case,
reprint is required, fresh
message needs to be generated
in the system.
10 Goods Receipts Warehouse Goods Receipt would be done
Officer via the interface between SAP
and WAMS of EIL. Part 1
entries of RG 23 register get
updated during this process.
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Logistics Invoice Finance Dept. MIRO LIV would be done with
Verification reference to the goods receipt
done
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62
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Fig. xiv) Procurement Process for operational phase of refinery
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CHAPTER 4:
DATA
COLLECTION
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4.1 PRIMARY SOURCES
• Business process specifications from HMEL core project team and Business
heads.
hired by HMEL.
documentation process.
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4.3 DATA COLLECTION ACTIVITIES AND VARIOUS
Various documents, containing paramount data, are produced during the procurement
EIL&HMEL has maintained the list of approved vendors for procurement of all brought-
out items(Tagged and non-tagged) items i.e., major Equipments / Materials (stock &
All the vendors interested to be included in Approved Vendor List are required to apply
to the company according to standard company procedures by submitting all the pre –
1. Inspection team scrutinises and evaluates the documents submitted by vendors for
their validity.
2. After documents inspection, Inspection team visit the facility of vendor to evaluate the
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Vendors clearing above two stages are included in Approved Vendor List.Approved
Vendor List consists of names of trusted vendors. Approved Vendor List contains the
Limited Bidding process is carried out in the organisation. Only the Approved Vendors
are invited to give their bids. No press advertisement is released requesting RFQ.
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2. COPY OF MATERIAL REQUISITION ISSUED/APPROVED SAP PR:
organisation. Business users can initiate the Material Requisition upon their
requirements.
SAP PR contains PR No. which is unique for every PR generated. It contains the details
EIL is responsible for generating the Material Requisition for procurement of Bought-
out items used during the constructional phase of refinery. HMEL departments would
PR raised by the user contains the appropriate justification of raising the PR. Notes for
vendor is also there which makes vendor aware of company’s general terms & condition
consists of Terms and Conditions for Delivery.PR also contains the list of recommended
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3. RFQ ISSUED
After the creation of approved Materials Requisition, next step is to generate Request
Based on the released MR items from the user department, Contract & Procurement
Department (C&P) of EIL shall float RFQ to the vendors finalized by the HMEL team.
RFQ contains the unique RFQ No. along with RFQ generation date and Quotation due
date.RFQ gives the details of term and conditions of bidding process by vendors.
Further RFQ contains the details about the item to be procured along with INCOTERMS
and PAYMENT TERMS involved. RFQ also gives the details about the expected
delivery date.
In case of monopoly or few vendors, if the vendor is unable to provide the exact
If a vendor is capable of providing all the materials/services and ready to comply with
company’s terms and conditions then it sends an acknowledgement cum consent letter to
the company. Interested vendor responds to the RFQ invitation by giving the letter of
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acknowledgement. The acknowledgement letter contains the consent of the vendors
5. ADDENDUM(IF ANY)
If the requirement of the material/services changes like additional units of materials are
Company may provide extension in due date depending upon necessity. Vendors can
work upon the new quotation incorporating the Addendum within the extended due date.
Vendors provides their priced and unpriced bids to the company in a sealed envelope in
the required format given by the company. Vendors might go with slight variation in the
prescribed format depending upon the specifications of vendor. Vendor must intimate
the slight variation in prescribed format to the company and get the consent of the
company.
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UNPRICED bids contains the technical details of materials/services needed to be
procured without any details about the price. The unpriced bid contains details about the
The department which has raised the Material requisition is responsible for analysis of
Unpriced bid to determine whether vendor is satisfying all the requisites of procurement
of proposed material.
PRICED BIDS contains the details of unit price and total price of each item to be
procured. Total price is determined my multiplying unit price by total number of items
to be procured.
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PRICED BIDS are analysed by Procurement department to evaluate the commercial
All the correspondence happened during the vendor selection process are filed at one
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9. TECHNICAL REVIEW
The department responsible for raising the requisition prepares the technical review of
the vendor to determine whether they are technically qualified or not. Only technically
10.RECOMMENDATION OF AWARD
EIL prepares Recommendation Of Award list for all the selected vendors and forward it
Award list.
Final LOA is prepared and released according to release strategy. All the necessary
LOA copy is retained and forwarded to EIL. Final LOA raised by HMEL is the
13.ACCEPTANCE OF LOA
of LOA.
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14. DETAILED PURCHASE ORDER RAISED
PO contains the complete details about the expected quantity and final prices agreed
upon by both vendor and HMEL during final negotiation sessions. PO is released by
HMEL according to releasing strategy and forwarded to vendor. The copy of final PO is
forwarded to EIL.
A purchase order usually contains: PO number, shipping date, billing address, shipping
and reference or part numbers of the items to be purchased, with quantities and prices.
These documents are generated when material or services are received. The GRN has
information relating to what has been received, how much and when. On completion of
the GRN a copy is sent to payments, with the invoice, for payment.
1)Order Number. the number of the PO you are trying to receive items from.
3) Delivery note. If there is a reference on a delivery note / invoice it can be put in here.
5) Material Name and Description: the name and description of the material being
received.
6) Quantity: the quantity of items you have received. This is not necessarily the same as
the amount expected. It is possible to create as many GRNs as you wish as long as the
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total is the same as on the order. In some situations it may be necessary to create more
than one GRN should you the items on your order arrive at different times.
16. INVOICES
Original invoices are retained and forwarded to finance department for payments. An
the products, quantities, and agreed prices for products or services the vendor has
provided the company. An invoice indicates that company must pay the vendor,
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CHAPTER 5:
ANALYSIS
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The business processes are analysed after SAP implementation and following benefits
are observed :
COUNTS:
HMEL has reported increased employee productivity and reductions in personnel costs
increases in the productivity of end users (who could now create their own management
reports) as well as IT personnel (who no longer had to support the end users in the
SAP’s solution for financials and operations management has either reduced the number
reporting.
There is reported cost reductions resulting from improved financial and operational
management through their use of SAP. In particular, it has been observed that the
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visibility these solutions provided into operations along with the automation of various
in operational costs.
DECISION MAKING
With the standardization of data and the improved access to management information
executives and managers to make better business decisions that were based on sound
business data.
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CHAPTER 6:
CONCLUSIONS
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With the implementation of SAP, HMEL has significantly realised benefits through
improved efficiencies in the business processes of procurement which are critical during
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CHAPTER 7:
RECOMMENDATIONS
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1. Lack of breadth and repeatability :
3. Excessive customization
investment was achieved only when there was both a sufficient number of users and
Since HMEL is relatively new company with less number of employees, level of breadth
and repeatability could not be achieved. Some employees are reluctant to use SAP
implementation which further reduces the chances of attaining the breadth and
repeatability.
HIGH PERSONNEL COSTS : The high personnel costs associated with the
Return On Investment.
HMEL has deployed around 50-75 full-time internal personnel for implementation
SAP, the personnel time spent on training was significant in some cases.
with customizing SAP were very high. Excessive customization involved the
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RECOMMENDATIONS
1. Develop a clear road map for the full exploitation of functionality to a wide breadth
the promised benefits really apply to the industry and the user base in question.
deploying a usable system that will deliver returns within a measurable time frame.
returns and costs, taking into account the probability of achieving those returns and the
BIBLIOGRAPHY
WEBSITES:
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1. http://www.hmel.in
2. http://www.wikipedia.org
BOOKS:
2. Nair, N.G Production and Operations management, Tata McGraw Hill Publishing
Hours, new Delhi.
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