Study of Materials Department

INTRODUCTION
The term Materials Management is derived from the evolution of the purchasing functions to meet the growing complexity of the industrial structure. Materials Management is an enterprise for the acquisition and use of materials employed in the production of goods. It is used for the group of activities concerned with purchase of materials and services to the point where they are economically useful. Thus Materials Management can be defined as the concept of operation commencing which system atically integrates horizontally related materials functions, commencing with determination of materials needs and culminating in the delivery of finished products. Materials Management has a wide scope and broadly covers fairly well dispersed functions of management as Budgeting, purchasing, production control scheduling, manufacturing, maintenance, inventory and material quality control, storage ,warehousing ,shipping ,traffic and salvaging. The management of materials starts functioning with the designin g, planning and procurement of materials and then getting the materials through the successive stages of operations for the final embodiment into an end product. Such a wide coverage, naturally, gives the materials management a very wide scope. The objectives of materials management are interrelated in many concerns. These decisions are taken by different functional specialists. The purchase manager, inspection, engineering, production make purchase decisions, the inventory decisions are taken by the works manager. Marketing manager controls warehousing traffic activities and the overall materials management job is divided among some divisional heads.

Study of Materials Department

MATERIALS DEPARTMENT
The materials department at HPCL has two main sections: 1. Main Warehouse. 2. Purchase.

Warehouse
y A warehouse is as storehouse specially designed for receipt, storage and handling of goods. Warehouses are also called as distribution centres or logistics centres. y Different types of Warehouses 1. General Warehouse: Stores a variety of goods. 2. Specific Warehouse: Stores a limited line of goods like Cloths and Chemicals. 3. Bonded Warehouse: Warehouse authorised by customs officials for storing goods without payment of excise taxes or duties till they are removed. Government laws regulate these warehouse 4. Bulk Storage Warehouse: Warehouses that handles liquid goods such as petroleum, fuel oil etc. 5. Refrigerated Warehouse: Warehouse which stores perishable goods. 6. Field Warehouse: Warehouse hired by an organization in another organisation premises. y Different activities carried out in warehouse 1. Maintaining the Item Catalogue 2. Reordering the stock items 3. Following up with vendors for materials after PO placements 4. Materials receipt- In-warding of the materials 5. Materials Inspection- Offering the materials for inspection, coordination with the inspecting groups 6. MRR preparation of received materials 7. Material binning 8. Issue of Materials to user groups 9. Receiving the excess materials from the user groups 10. Physical verification of the inventory
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Study of Materials Department

Purchase
y The term purchasing describes the process of buying, learning of the needs and following up to ensure quick delivery. y Elements of purchasing 1. Price: It is an important element of purchasing function. The supplier tries to secure maximum price for the products whereas purchase tries to secure the same at the most economical rates. 2. Quality: Quality determines the price of goods. It involves consideration as materials, goods workmanship, sizes, designs, colour and patterns. 3. Quantity: Quantity to be purchase depends upon anticipated sales 4. Sources of Supply:It becomes easier to locate desirable sources of supply by means of purchasing records. 5. Time of Delivery:It is necessary that all materials for a job arrive in time to avoid delay in work for which the product was purchased. y Purchase Cycle 1. Identification of Requirements. 2. Selection of Proper source of supply. 3. Deciding on Quantity and Quality. 4. Finalizing Delivery Schedule and Price. 5. Placing a purchase order. 6. Arranging the transportation. 7. Receiving the material in the stores. 8. Bill settlement.

Study of Materials Department

Important concepts
Nature of contracts developed for maintenance purpose is as follows: 1. Standing Order 2. One Time Order


y Standing Order: Standing Orders are generally applicable for service contracts. These contracts are developed for attending various routine nature jobs as and when required on daily. Such contracts are usually valid for a period of six months to one year. Turnaround & Development Department develops all regular Stan ding Orders for normal as well as turnaround maintenance jobs. However, each Maintenance Section also develops certain contracts of this nature on need basis. y One Time Order: These orders cover all one-time requirements for service as well as nonstock material supplies. The contracts are developed to attend all start -tofinish type of job requirement with specific delivery schedule. User sections of Maintenance Department develop these contracts basis recommendations received from Operations, Technical & Inspection Department.


Stock Items:

Stock item can defined as an item having a proper identification code with proper reordering norms. Stock Items are procured by warehouse personnel on the basis of reordering norms and is stored in warehouse after receipts.


Present Item Classifications

Presently all the warehouse stock items are broadly classified into four categories i.e.
y y y y

Essential Regular Temporary Obsolete

Study of Materials Department

The present criteria for defining the item categories is as follows 1. Essential: Item will be treated as Essential only if it shall meet all the criteria given as follows Item should be an Equipment Spare Annual Consumption should be less than Four Sets Non Availability of Spare will lead to production stoppage or major safety hazard or both IV. Item will not be treated as Essential if it meets any of the three criteria as given below a. Shop Spare is available b. Item is Substitutable c. Life can be predicted 2. Regular : Item will be treated as Regular if it meets any of the following c riteria I.Item is equipment Spare & Annual consumption is more than or equal to Four sets II.Item is Consumable & required to be used in more than 4 Months in a year. 3.Temporary: Item will be treated as Temporary if it meets any of the following criteria I. For Equipment Spares a) Annual Consumption should be less than Four Sets b) Non Availability of Spare should not lead either production stoppage or major safety hazard c) Item meets any of the three criteria as given below  Shop Spare is available  Item is Substitutable  Life can be predicted For Consumable a) Item will be required to use in less than 4 Months in a Year I. II. III.

II.

Study of Materials Department

4. Obsolete: Items are treated as Obsolete if it is not required due to the following reasons I. II. III.


Equipment is replaced with an upgraded version and hence out of service & old equipment is not relocated elsewhere. Equipment is no longer in use hence out of service Useful Shelf Life of the item expired and hence ca nnot be used.

Criteria for Present Stocking Norms

At Mumbai Refinery following terminology is being used in the system for Stocking Norms:

y y y y y

Reorder Point Essentiality Level Economic Order Quantity Safety Stock Lead Time

1. Reorder Point Reorder point is the item inventory level at which new procurement action needs to be started. This term is generally used for Regular Items & at HPCL MR it is being calculated on the following criteria RP= Monthly Consumption x Lead Time in months + Safet y Stock 2. Essentiality Level It is the Reorder Point for Essential Items & at MR It is being calculated as follows EL = Monthly Consumption x Lead Time in months + 1

Study of Materials Department

3. Safety Stock Safety Stock is the terms used in the context of Regular Items. Safety stock is required to take care in the event of delay in the delivery beyond the delivery schedules. It is calculated as following Safety Stock = 0.5 x (Monthly Consumption x lead time in months) 4. Lead Time This is an average cycle time between PR date & Material Receipt date (MRR approval date). Just -in-Time

Just-in-Time is a philosophy developed in Japan which is aimed at preventing all kinds of wastes whatever their nature and wherever they may occur. The basic idea behind just-in-time purchasing is to establish agreements with vendors to deliver small quantities of materials just in time for production. This can mean daily, twice-daily, and sometimes hourly delivery of purchased items. The critical elements of JIT purchasing are: 1. 2. 3. 4. Reduced lot sizes Frequent and reliable deliveries Reduced and highly reliable lead times Consistently high quality levels for purchased materials.

ABC Analysis: ABC analysis is one of the techniques to control inventory. Under ABC analysis the inventory items are categorised as A Class Items, B Class Items and C Class Items. The A Class Items tend to be either high volume or high unit cost items which constitute a relatively small percentage of
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Study of Materials Department

the number of items in stock but a small percentage of the consumption value. The B Class Items are somewhere in between. Under ABC analysis, the following is usually considered as the representative distribution of inventor items and value. Category No of Items Consumption Value A 10-15% 70-75% B 15-20% 15-20% C 70-75% 10-15%

Study of Materials Department

Main Warehouse

y Main Warehouse is the place where the materials are received, stored and supplied to the user for general maintenance of the working plant or unit in HPCL, Mumbai Refinery. y The 4 sections in the Main Warehouse are as follows: 1. Ordering Section. 2. Inventory Section. 3. Receiving Section. 4. Issue Section. y The various activities that are performed are as follows : 1. New Stock Setup. 2. Deletion of Obsolete Items. 3. Ordering of items. 4. Follow Up. 5. Receiving of items. 6. Physical Inventory Verification. 7. Issue of Items.

Study of Materials Department

ORDERING SECTION

y ADDITION 1. Upon receiving of MAXIMO for making New Stock Set Up From user Department following jobs to be done by Addition/Deletion Cell Clerks at Main Warehouse. 2. Before the creation of new stock item i.e. entering this data we have to check whether any similar item exists in MAXIMO, to avoid duplication of any item. 3. Check whether estimate and supply class of item is properly filled. 4. Create new item number in the MAXIMO and feed item description, Maxima, Minima, Re-order level, Safety Stock,Approximate Procurement cost, Lead time of procurement, Item category and Vendor Code if the item is proprietary. 5. Attach these items to the four storerooms i.e.Central,Turnaround, Surplus and Inventory Adjustment in the inventory module according to their Maxima and Minima and also assign Issue andReceipt Unit e.g. Each, Meter, MT , feetetc.

Process 1. Login into the MAXIMO 2. Go to the Inventory Tab and select Item Master. 3. In Item Tab, Enter the no given in the proposal for ERTO stock setup. 4. Enter Item Category. 5. Enter Item unit and order unit and save info. 6. Now enter specification and save it. 7. Now in item description, we will give description of the item.

y Deletion 1. Similar activity is to be done upon receipt of Deletion Memo from user for unwanted spares which are not to be used or ordered in future i.e. they are to be made OBSOLETE. 2. We have to enter Stock Category as Obsolete in MAXIMO in all the four storerooms so that mistakenly also they should not be ordered by chance. 3. Also take out these items from the bins and to kept separately with their respective Tag of item no, Description and Obsolete Tag for disposal in future.

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Study of Materials Department

y Ordering Cell

1. Items and needs are ordered only after intimation from user via Email received from user or only after they are reserved in the Work Order of any specific job. 2. We have to physically verify their current balance and the order the shortfall without any delay. 3. For about 40% of the total no. of the items we are operating Standing Orders i.e. Blanket PO for a period of 1to 3 years for which we have to make Standing Order Purchase Requisition in HS Category in which we have to mention that PR quantity. These standing orders are to be reviewed at regular intervals. 4. After the finalization of PO for Blanket POs we have to check for current balance of all the items covered in such POs and also to create release POs for the same and after approval of the same by our officer we have to either e-mail or fax copy of Release PO to vendor for early expedition of delivery of these materials. 5. Few of the PRs we do mention that the quotations received from the vendors to be reviewed either by the user department or warehouse for technical queries/ specification review.
y Follow up Cell 1. To follow up with vendors for early expedition of material on or before due date of PO for making the material available for issue in time. 2. This job include Telephonic follow up , by sending Fax through TELEFAX or E-mailor to visit personally at the vendors Office for early expedition of the same. 3. To collect the original invoices/Lorry Receipt copies from Finance Department and send intimation letters to authorised transporters. 4. After making necessary entries in the material clearance register handover the papers to the authorized transporters for material clearance. 5. Keep follow up with the transporters for early clearance of material. 6. Follow up with Octroi agents for making arrangement for making octroi payments. 7. Follow up with the inter departments for clearance / deliveryof the materials. Xeroxing the original papers and filing the same.

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Study of Materials Department

INVENTORY SECTION
y Physical inventory verification 1. Every year take 100% inventory of all the stock items of Main Warehouse class wise in presence of a finance representative and note manually quantity available in Bin against each item in the Physical Inventory Sheet. 2. Thereafter immediately punch in MAXIMO, physical count of each item counted on that day . 3. Transfer the shortages/overages in Inventory Adjustment Storeroom for explanation purpose. 4. Review shortages/ overages in MAXIMO in Inventory and try to find out one by onecasewise for explanation of these variations and adjust the current balance in respective storeroom. 5. Process 1. Login into MAXIMO 2. Go to the inventory tab in the MAXIMO. 3. Generate Input sheet for physical verification 4. Enter the code of the class to be verified 5. Now, the report contains the average cost,storeroom where the items are kept,Bin number, current balance ,Issue unit , Physical count, Category,last date of issue and last count date 6. Now, the physical verification of the stock items in the bins is done. Here the verification is done by the i nventory representative in the presence of the finance representative. 7. The inventory is checked for overages and shortages by comparing the physical count and the current balance in the MAXIMO. 8. Then the report is finally signed by both the representatives. y Day to Day Inventory On Daily basis take physical count of all materials issued on previous day so as to find out if any shortage/ overage are created mistakenly & if found to correct the same immediately without any further delay by giving necessary justification.

The major difference between Physical Inventory and Day -to-Day Inventory is that day-to-day inventory deals with the transactions taking place daily irrespective of the class whereas inventory keeps track of all the bins in the inventory class wise throughout the year going class by class.
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Study of Materials Department

RECEIVING SECTION
y On receipt of material from the vendor, first check in the MAXIMO whether this particular PO material is pertaining to Material warehouse or not. y Thereafter we also have to see whether necessary MODVAT Invoice is submitted or not if applicable. y Once this is done, we have to acknowledge the receipt of material along with HPCL stamp and the receiving clerk has to sign on the receipt of material. y Physically count the material and tally with Delivery Challan for shortfall or Excess. y Inward all the details giving date of receipt, initials of receiving clerk, material description, quantity received, Challan number and date ,Modvat received or not, Material Test Certificate received or not. y Keep the material for Inspection. On the arrival of representative of the inspection department offer the material for inspection. y Upon endorsement of Inspection officers remarks get the approval of receiving manager and generate Material Receipt Rep ort. y Now bin all the OK material in the respective bin. y In case of rejection, generate Report of Rejection Memo after necessary rejection approval. y Rejected materials are to be kept separately in Rejected Material Bin area with Rejected Tags so that the materials can be shown to vendor when he comes for replacement.

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Study of Materials Department

INSPECTION OF MATERIALS
1. After the material is received at the receipt section, the material is sent for the approval of the inspection department. 2. Now, the receipt section sendsan email to the respective inspection department for inspection of the relevant material. 3. At the time of inspection the representative signs on the copy of the email and verifies whether Test certificate exists. 4. At the inspection department ,the follo wing parameters are checked: In case of rotating equipment a. Dimension. b. Material testing. c. Surface finish. d. Hardness testing. e. Genuineness of spares by checking the related certificates. In case of electrical equipment a. Checking of Test Certificates. b. Checking specifications with respect to the catalogue. c. General visual inspection. d. Checking of operating mechanism. 5. After the reports of inspection are received the inspection manager enters his comments in the MAXIMO and sends the reports for the approval of the inspection manager. 6. On the basis of this report the material is either accepted or rejected. 7. This report is then sent to the receipt department which then takes necessary action on the basis of the reply of the inspection department.

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Study of Materials Department

ISSUE SECTION
y Generate a consolidated report for total material issued/credited for the previous day and attach all the MIRs and MITs in the ascending order of Work Order no. to be binded to store in the record rom for future record purpose y Upon receipt Of Material Issue Request (MIR) from the user representative, issuing clerk to verify approving authoritys signature endorsed. y Then go to the respective bin for withdrawing the material form respective bins for issue purpose. y Accumulate all the issued materi al at one place on the issue counter for issue counter for cross verification of material to be issued. y Process in MAXIMO: 1. Login into MAXIMO 2. Go to the issue and transfers tab. 3. Default Store is Central. Unless we have to enter the type of storeroom. 4. Go to the issue tab after that. 5. Select the reserved items tab. 6. Select the filter tab. 7. Enter the work order and copy it. 8. Select filter tab. 9. Select the items in the MAXIMO corresponding to the items in the MIR. 10. Finally save the report and copy the work order 11. In the report select Material Issue Ticket and paste the work order no in the space given below and click on submit. 12. The Material Issue Ticket is then generated. y Now three prints of the MIT, one copy is to be retained along with the MIR for Warehouse record, second copy is submitted to CISF In-charge and the third copy is to be given to the user department after endorsing issue clerks signature on all the 3 copies. y Maintain delivery record register of Chemicals/Catalysts &Gas cylinders to be issued on daily basis and keep track of MIRs received for delivery of the same and post it in the MAXIMO after they are delivered to the respective locations/plants.

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Study of Materials Department

Purchase Department
y The Purchase department is concerned with the process of buying, learning of the needs and following up to ensure quick delivery . y The Purchase department outlines policies andprocedures governing the following functions : 1. Purchase of materials and supplies and award of construction/ service contracts. 2. Disposal of obsolete, surplus, unserviceable and slow moving materials and equipmentas well as scrap. y Process 1. When a requirement of material is generated at the user department, the user sends a Purchase Requisition (PR) to the purchase department. 2. The PR is then sent to approval of the purchase manager. 3. After the approval of the purchase manager is received, then the tenders are floated. 4. Now in case of tenders of value more than Rs. 5lakhs the tender enquiry should be sent to min. of six vendors and for less 5 lakhs the tender enquiry should be sent to a min. of three vendors. 5. Now depending upon the value of the following tender are generated: a. If the value of the tender is less than Rs. 300 lakhs then limited tenders are generated. b. If the value of the tender is more than Rs. 300 lakhs then public advertisement is generated. c. In case of Proprietary items single tenders are generated. 6. When strict technical specification are to be adhered to the quotations received from the vendors are sent to the user department for technical review. 7. After the technical review is sent by user department, the price bids of the selected vendors are opened and the vendor with the lowest quote is selected. 8. After this, according to the value of the ten der the approval of either the finance department/Head of d epartment/Bids Review committee/Contract Review committee is taken. 9. After the approval of the relevant committee is taken, then Purchase Order is placed with the vendor.

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Study of Materials Department

PURCHASE POLICIES
1. All purchases and commitments to purchase will be handled by the Purchasing Authority and will be responsible for all commitments made to suppliers for equipment, materials, spares, supplies and services. 2. Securing of price quotations for materials, equipment spares, supplies and services, will be the responsibility of the Purchasing Authority. 3. The selection of vendors is the responsibility of the Purchasing Authority. If preference is given to certain vendors, appropriate reasons should be given for the same. 4. All tenders shall be opened in the presence of intending bidders irrespective of value or whether such tenders are limited, public, single tender or otherwise. 5. Items purchased for personal use of an employee shall not be made. 6. Purchase/services shall not be made/availed from employe es and their dependants. 7. Negotiations should be resorted to only in exceptional cases depending upon circumstances and market trend and subject to the direction of the approving authority for appointment of the negotiation team. 8. Two Bid system should be resorted to when strict technical standards are to be adhered to. 9. Single supplier will be considered in case of proprietary items. 10. Public Tender will be resorted to in cases of all tenders having a value of Rs. 300 lakhs (high value) and above. 11. Lowest tender means the lowest of the technically acceptable tenders. 12. The purchase order for modvatable locations should clea rly mention the basic price and the MODVAT component separately so as to ensure that the total payment against the submission of modvatable documents does not exceed the amount of MODVAT somentioned in the purchase order. 15.e-Procurement including reverse auction will be an acceptable method for procurement of materials, services and works contract.

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Study of Materials Department

PURCHASE PROCEDURE
y TENDERING

I. TYPES OF TENDERS 1. Limited Tenders: Tenders of value less than Rs. 300 lakhs shall be through a limited tender except: a. Where global tenders are considered necessary . b. When the sources of supply are not known . In cases of high value purchases (over Rs. 300 Lakhs) limited tender may be resorted to after approval of the Contracts Committee in: a.A case of established urgency. b.A case where sources of supply are definitely known and possibility of fresh sources being tapped is remote. In the case of tenders of estimated value of R s 5 lakhs and above, enquiry should be sent to a minimum of six parties and for tenders of less Rs. 5 lakhs enquiry should be send to a minimum of three parties. 2. Single Tenders: "Single tender means tender floated to one party". Single tender enquiry would generally arise in the case of : i. Proprietary Items Proprietary items are spares and component parts of a particular brand of existing machinery/equipment which need replacement and which can be obtained only from a single manufacturer/authorised agent, or special formulations available from a single source. ii. When the Services are of a specialised or critical nature which can be rendered only by a single supplier. iii. Where cost particulars cannot be obtained in advance of awarding the job, like repairs to/ overhauling of equipment . 3. Public Tender: Tenders should be invited by public advertisement in the press (leading newspaper bycirculation) in the following circumstances : i. Any tender of a value either equal to or above R s. 300 lakhs (high value) for all contracts or supplies ii. Where global tenders are considered necessary. iii. When the sources of supply are not known . For Public Tender apart from inviting public tenders through advertisement in the press as mentionedabove it shall be necessary to publish such notice on the Corporations Web Site also.
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Study of Materials Department

II. PRICED AND UNPRICED TENDERS For inviting tenders requiring strict technical standards, the following procedure should be adhered to: 1. Tenders are invited in two parts i.e a. Priced Tenders b.Unpriced Tenders. 2. First the Unpriced bids are opened and sent for technical evaluation. 3. While sending these tenders for technical evaluation, Purchase Department will specify the number of days by which the technical evaluation is to be completed. 4. After Technical Evaluation in case of minor changes in techno-commercial scope, terms and conditions, price implication may be sought. 5. In the event of major changes after Technical evaluation discussion on account of bidder/owner, revised priced bids may be sought from all the technically qualified/acceptable bidders. 6. After establishing technical and commercial suitability of the offers, the corresponding "Priced" tenders should be opened and evaluated within reasonable time from the opening of technical. 7. If three technocommercialacceptable parties are available, evaluation shall be conducted by rejecting any and for all the parties seeking deviations, price bids should be returned unopened . III. NEGOTIATION Negotiations can be carried out with bidders only for reduction in price offered by them and not for clarifications or change in specifications, delivery terms etc. For the negotiations, if carried out it must be intimated in advance to the bidder to ensure that thereis no increase in price offered by the bidder consequent to negotiation. IV.RATIONALISATION Wherever the lowest bidder has been selected for award of contract and a need is felt for amendment in any terms, including prices quoted by him , the awarding authority may use his discretion to authorise : - the Purchasing Authority - the Finance Representative - User/Quality Control Department to approach the selected vendor for such amendments. This is called Rationalisation. As this does not amount to negotiations, the need for appointment of NegotiatingTeam does not ar ise. Rationalisation need not be resorted to, if the LPR estimate is below Rs 1 lakh

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Study of Materials Department

V. MATCHING THROUGH COUNTER OFFERS If the lowest acceptable offer is more than 20% of the estimated cost as per purchase requisition, counter offers for matching with rates as per cost estimate may be made tothe lowest tenderer. The decision on acceptance of counter offer shall be taken by the Purchasing Authority with Finance Concurrence. After this evaluation of the bids are done .Here according to the value of the tenderthe appproval of Head of Department/ Bids review Committee/Contracts Review Committee is taken.

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