MATERIALS MANAGEMENT An overview

By S K Pandita /DGM (CM)

ORGANISATION

MULTI USER DEPARTMENT

FINANCE DEPARTMENT

MATERIALS DEPARTMENT

Materials Managemen t Department role is fulfillment of internal and external demands

Planning

SOURCING

RISK Management

IMPORTS

LOGISTICS

STOCKING

Materials Management Department functions classified

Sourcing Purchase Management Imports & Customs Materials Management Functions Stocking Stores Management Risk Management

Planning & Inventory Management

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

LEAD TIME ANALYSIS LEAD TIME .. IT IS THE ESTIMATED TIME LAG BETWEEN THE DATE, THE INDENT IS ACCEPTED AND REGISTERED IN PURCHASE SECTION TO THE DATE OF PHYSICAL RECEIPT OF MATERIALS AT STORES. IT IS PRE KNOWN ON ESTIMATED BY THE MATERIALS MANAGERS DEPENDING UPON TYPE OF MATERIALS AND BASED ON PAST EXPERIENCE.

IT CAN BE SUB DIVIDED INTO FOLLOWING COMPONENTS: I) ADMINISTRATIVE LEAD TIME. II) SUPPLIERS LEAD TIME III) TRANSPORTERS LEAD TIME

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

Purchase Responsibilities: Vendor Enlistment:

Developing New Sources of Supply Vendor Directory Vendor Evaluation

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

Right Price
Proper Planning Tendering Negotiations

Right Quality
Proper Specifications Technical Data , Drawing & Quality Plan Sampling Standardization(Item/Product)

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

Right Time
Re Order Level (ROL) Lead Time Analysis

Right Source
Vendor Rating Dependability Purchase Research Standardization (Source)

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

Right Quantity
Price Structure & Discounts Economic Order Quantity

Right Contract
Legal Aspects

PURCHASE MANAGEMENT Parameters For Effective Purchase Management

Right Transportation
Cost Analysis Of Transportation & Logistics

Right Attitude

Materials Management Department OBJECTIVE

Is to purchase an item of required quantity and specified quality on competitive

basis from eligible source at right price, within a required time frame

The main objectives of purchase is traditional

five Rights that is procurement of

"stores of Right quality from Right supplier in the Right quantity at the Right time and at Right price"

the 6th is right attitude

&
The MOST important the 7th

Right Procedures

Materials Managemen t Department Roles & Responsibilit y of Purchase Officer / Manager

Contracts & Materials

Tendering & Award of
o All packages of new Projects, o Expansion Project o Renovation & Modernisation packages including o Construction Materials during Project Stage

Procurement of MRO items

M Maintenance R Repair & O Operations

Consumables and Services during Operation Stage

PURCHASE MANAGEMENT
selecting Mode of Tendering

Single tendering
Mainly covers , OEM / OES , PAC Cases

Limited tendering
Single part tendering or Two part tendering

Open tendering
Single part tendering or Two part tendering

ExistingProcess:

Procurement Steps

Preparation of QR / bid docum ent N I T approval Invitation of Bids Bid opening Technical Evaluation Report by Technical clarification from vendors Preparation & TC recom endation for Price Bid O m pening A pproval for Price Bid opening Com unication to bidders and opening of price bid m Price bid Opening & C S Preparation & TC recom endation for award / Pre m award discussions. A pproval of TC recom endations m PRE - A RD DISCUSSION WA Pre award discussions with bidder TC Note approval after pre award discussions Issue of Purchase Order Indentor

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in c s O ae T P p ra nO Q re a tio f R

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cla a nb E rific tio y m ils a

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A p va O T R c m e d tio p ro l f C e o m n a n
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V ttin O D ft P / L A e g f ra O O

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Materials Management Department functions classified

Procurement Management Functions

Pre Award Purchase indent Vendor base
Technical Specifications Vendor Enlistment Contract Closing

Post Award
Tender Committee & Bid Opening

NIT
Tender Enquiry

Budget, Concurrence Tender Qualifying & Requirements Documents Pre-Award discussions & Administrative approval

Bid Evaluation Clarification Bid Finalization of Award

PURCHASE Management a concept Purchase Management Functions Pre Award Activities:

Activities from the preparation of Purchase Indent, Technical Specification, Administrative Approval, Cost Concurrences, Budget Vetting. Preparation Of Tender Documents, Floating of Tender Enquiry, Bid Opening, Technical Clarifications & Evaluation, finalizations of Award.

PURCHASE Management a concept Purchase Management Functions Tendering

Finalization of QR Invitation for Bids Issue of clarification/amendment and pre bid conference where warranted Submission, receipt and opening of bids Bid Evaluation Pre Award Discussions Approval For Award Recommendations Award of Contract

PURCHASE Management a concept Purchase Management Functions

Cost Estimate
Indentor prepares Cost estimate based on the BOQ and processes for approval Cost estimate forms the basis of cost control in the Pre Award Stage

PURCHASE Management a concept Purchase Management Functions

Qualifying Requirements (QR)

QR identifies bidders capable of delivering goods and services as per specifications QR enables adequate participation facilitating competition QR includes Technical Requirements and financial requirements

PURCHASE Management a concept Purchase Management Functions

Bidding Documents
Most important ingredient of Purchase Management Terms And Conditions to be based on principles of fairness and Equity

PURCHASE Management a concept Purchase Management Functions

The bidding documents include:

Invitation for bids Instruction to bidders Purchase Conditions Specifications & drawing Form of Bid & form of Contract Essential Schedules & formats

PURCHASE Management a concept Purchase Management Functions

Release of NIT with

Finalization bidding documents Receipt of final tech spec including QR & Cost Estimate Approval of draft NIT Release of abridged NIT in the Press Release of detailed NIT on NTPC web sites

PURCHASE Management a concept Purchase Management Functions

Pre Bid Opening Activities

Constitution of TC with one member each from CM, INDENTOR & Finance Organization of Pre Bid Conference if so necessary Issue of Clarifications/Amendments Extension of BOD if so necessary

PURCHASE Management a concept Purchase Management Functions Evaluation of Bids

Discrepancies /Observations regarding Bid security etc Arithmetical Errors Seek Clarifications on QR if required Analysis of Technical & Commercial Deviations Capacity & Capability Assessment

Indent Approval

FLOW CHART OF PROCUREM ENT ACTIVITIES

Materials Managemen t Department Purchase Managemen t Functions-1

Indent Approvals & Receipt at M aterials Department

INDENTOR preparation of Indent

Administrative Approval

Verification of Indent before Registration if okay register

Cost Estimate vetting by Finance

Budget Provision Certification by finance

Receipt of Indent at Materials Department

Maintain Purchase Indents / Requisitions (PI/PR) Approved QR, Finance Vetted Cost Estimate

Purchase Management Finalization of Bidding Documents

Preparation of Bidding Document
General Conditions of Contract

Bid Proposal Schedule

Special Conditions of Contract

Inputs from Indentor Detailed Technical specifications List of Mandatory spares Detailed Bill of Quantity

Issue of Enquiry
FLOW CHART OF PROCUREMENT ACTIVITIES

Materials Managemen t Department Purchase Managemen t Functions-2

Registration of Indent & Issue of Enquiry

REGISTRATION OF INDENT check for value / type of tender In case of O/T Nomination of Q.R. Committee

Finance for Concurrence

In case of ST & L T For S/T or L/T > Rs.15 lacs

Proposal for Floating of Tender Enquiry

Preparation of Qualifying Requirement

Approval of Q.R.

Float Tender Enquiry

Nomination of T.C.

Wait for BOD

Maintain Tender Enquiry Proposals ( ST/LT/OT) Prepare , Update And Approve new TEP. Drop if so warranted Approval Package Specific Changes in Bid Documents

 Purchase Management Functions:

Float tender enquiries (TE) Enter technical scrutiny details for TE. Enter purchase committee recommendations Maintain TE status. Maintain quotations & vendor-analysis details Add /Modify new quotations. Generate comparative statement. Seek Clarifications from vendor if needed

Bid Receipt

Purchase Management Functions Bid Receipt & Opening

Receipt of Bids by hand Receipt

Receipt by Mail

Ensure Availability of Approved Cost Estimate TC in place Receipt of acknowledgement Copies of Amendment issued during the process.

Bid opening
FLOW CHART OF PROCUREMENT ACTIVITIES Bid Opening & Technical Evaluation
Bid Opening
In case of Two Part Bid Single Part Technical Bid Opening

Technical Evaluation by Indentor

TC Meeting
TC Recommendations

Technical Clarifications from bidders thru' Materials Deptt. Approval Process Proposal for Price Bid Opening
Intimation to Vendor

To ask for price effect if any at this stage

Price Bid Opening Preparation of CS TC meetings & Recommendations

PURCHASE MANAGEMENT
Why two part tendering

Two part tendering for procurement is , generally not adopted at sites / station and the same is also not envisaged in the Purchase Management Manual. However, two part activity should be followed for items of highly technical nature , particularly in the areas of IT hardware / Software Development & communication system equipments. This is being done for ensuring technical suitability of vendors & equating them at par before price bids are opened

Purchase Management Purchase Management Functions

Bid Opening
Opening
Representatives of CM, Indentor & Finance Bidders representative

Prepare Bid Opening Statement

Check Letter Of Undertaking Bid Security & Certificate Of acceptance of important Terms And Conditions

Bid opening : Proposed Changes in Existing System

FLOW CHART OF PROCUREM ENT ACTIVITIES Bid Opening & Technical Evaluation
Bid Opening
In case of Two Part Bid Single Part
Technical Evaluation by Indentor

Technical Bid Opening

To ask for price effect if any at this stage

Technical Clarifications from bidders thru' Materials Deptt.

This activity takes 7-10 days can be reduced

TC Meetings
TC Recommendations

Proposal for Price Bid Opening approval process Approval for Price Bid Opening
Intim ation to V endor

Preparation of CS

Price Bid Opening

TC meetings & Recommendations

Seeking revised price along with clarifications

Purchase Management Functions:

Maintain purchase proposals (PP)

Prepare PP for normal procurement Prepare PP for procurement thru RC. (rate Contract) Tender Committee (TC) Recommendations. Approve Purchase Proposal.

Purchase Management Functions:

Create & Maintain Purchase Orders (PO) Release PO. Amend PO. Record vendor acceptance. Close PO. Maintain delivery-order information.

Purchase Management Functions:

Perform vendor evaluation Maintain vendor-evaluation criteria. Set up scoring rules. Maintain vendor-rating catalogue. Allot scores to vendors on multiple criteria.

PURCHASE MANAGEMENT
MATERIALS PROCUREMENT : Selection of Source Of Supply Finalization of terms of Purchase Placement of Purchase Orders Follow Ups Maintenance of Cordial Relations with Suppliers Vendor Evaluation

PURCHASE MANAGEMENT
Purchase Responsibilities:
Pre Purchase System:
Purchase Requisition Checking Requisition for Specs ,QAP etc Vendor Selection Calling Tenders Evaluation Of Tenders

PURCHASE MANAGEMENT
Purchase Responsibilities:
Purchase Order System:
Timely Order placement on technically acceptable lowest bidder-L1 Detailing Terms & Conditions of the Order Binding On Supplier Accepting the Order

PURCHASE MANAGEMENT
Purchase Responsibilities:
Post Purchase Order System
Follow Up on selective basis (Critical Items) Tracking Of Consignments Invoice Checking Coordination with Finance For Retirement Of Bank Documents etc, LC Opening & Payments to Vendors

PURCHASE MANAGEMENT
CHALLENGES
Lack Of Quality Awareness of products because of inadequate competition incomplete specification Fund Constraints Change in Government Policies

Approval process: Proposed Changes in Existing System

FLOW CHART OF PROCUREM ENT ACTIVITIES TC Recommendatios & Pre-award Discussions

Approval Process ( ideal situation)

TC Note - 3 signatures

Preparation of CS

TC Meetings
TC Recommendation

Approval Process PreAward Discussion

Calling of Vendor

Review by CMM (2 +1) signatures Indentor (1+1) signatures Finance (1+1) signatures Approval by Competent Authority as per DOP

Approval Process In case no PreAward Discussion

Pre Award Discussion Final TC Recommendations Approval Process

Approval of TC Recommendations Preparation of Draft Purchase Order

To finance for Vetting

Review of Approval Process

Purchase Management Purchase Management Functions

Award Of PO:
Finalization of Award Recommendations by TC Approval as per DOP Award of PO

Purchase Management Purchase Management Functions

Post Award Activities
Release of Advance as per PO Seek Contract Performance Guarantees Release the Earnest Money Deposits for un-successful bidders.

Purchase Management Purchase Management Functions

Suppliers application for payment along with CPG and initial Advance BG Check BG received wrt format provided for in the contract Check for invoice Amt wrt payment terms

Initial Payment release

Prepare PAN and forward to Finance for payment

Purchase Management Purchase Management Functions oPost Award Expediting

Purchase Management Purchase Management Functions oPO Closing

oOn successful completion of warranty period oRelease of Supplier's contract performance security

PURCHASE MANAGEMENT
Ideal Time Frame registration of indent. to issue of purchase Order MODE OF TENDERING.
SINGLE TENDERING Single Tender LIMITED TENDERING Single Part Two Part OPEN TENDERING Single Part Two Part 10 weeks 8 weeks 16 weeks 14 weeks 20 weeks 18 weeks 20 weeks 18 weeks 23 weeks 21 weeks

PURCHASE MANAGEMENT
Reasons for delay - INDENTOR RELATED

The reasons for prolonged lead time Primarily the delays are attributable to following Insufficient Technical Specifications Lack of clarity in BOQ - ( Bill of Quantity ) Lack of clarity in BPS - ( Bid Price Schedule ) Lack of clarity in Bid Evaluation Criteria Selection of Vendors for issue of LT- enquiry Non availability of budget certification or cost vetting. Delay in technical evaluation.

PURCHASE MANAGEMENT
Reasons for delay - VENDOR RELATED

The reasons for prolonged lead time Primarily delays are attributable to following Poor response by vendor(s) to the indentors technical clarifications. for furnishing commercial clarifications. in resolution of commercial terms & Time extension sought by Bidders for bid submission..

PURCHASE MANAGEMENT
Reasons for delay - FINANCE RELATED

The reasons for prolonged lead time Primarily delays are attributable to following Delay in approvals due to Insufficient Budget provision
( where quoted cost is higher than the cost estimate. )

Non availability / insufficient Price justifications in ST, ST-PAC, OEM / OES cases .

PURCHASE MANAGEMENT
Reasons for delay - MATERIALS RELATED

The reasons for prolonged lead time Primarily the delays are attributable to following Non availability of soft copy of Specifications. BOQ , BPS . Insufficient response to NIT leading to BOD extensions mainly poor response from OEM / OES & PAC Vendors. .Follow ups & reminders are to be sent for getting offers.

PURCHASE MANAGEMENT
Reasons for delay - MATERIALS RELATED

The reasons for prolonged lead time Primarily the delays are attributable to following Reminders & follow up required for getting Price justifications Delay in conducting TC meeting. Non availability of TC Members - mainly from the indentor side due to pre occupation in O & M works. Delay in finalizing the TC recommendation note.

PURCHASE MANAGEMENT
Reasons for delay - Justification of Prices

The reasons for prolonged lead time Primarily the delays are attributable to following Tender processing modality, particularly when pre award discussion is involved after award recommendation of tender committee and justification of the prices quoted by OEM / OES and PAC Vendor(s)..

PURCHASE MANAGEMENT
-Corrective actions-1

In order to over come the delays & reduce lead time, ensure Increased Interaction amongst Materials Deptt. & Indentors.

PURCHASE MANAGEMENT
Corrective actions-2

In order to over come the delays & reduce lead time, ensure The indent should be complete by itself covering correct Material code, clear & specific description of the item(s) required , reference Standard codes ( IS , BS etc ), including ref codes of input materials, checks & quality requirements etc

PURCHASE MANAGEMENT
Corrective actions-3

In order to over come the delays & reduce lead time, ensure Identification of Core Coordinators within the Indenting deptt.

PURCHASE MANAGEMENT
Corrective actions-4

In order to over come the delays & reduce lead time, ensure Materials department immediately upon opening of Price bid should take up with indentor the issue of insufficient budget provisions prior to putting up TC recommendation note for approval.

PURCHASE MANAGEMENT
Corrective actions-5

In order to over come the delays & reduce lead time, ensure Materials department should develop a sample " of following " for wider awareness :Indent with Administrative approval - indicating various features like Budget estimate, Cost vetting., justification for mode of tendering, approved list of vendors , justifications for quantity indented , etc.

PURCHASE MANAGEMENT
Corrective actions-7

In order to over come the delays & reduce lead time, ensure Materials department should develop a sample " of following " for wider awareness Technical Specifications , indicating Qualifying Requirements ( as applicable) BOQ , BPS, Evaluation Criteria, Terms of payments & other important issues..etc . Completeness of Bid document / Indents.

PURCHASE MANAGEMENT
Corrective actions-8

In order to over come the delays & reduce lead time, ensure The completeness of indents along with specifications & data required form the vendors some time the lack of clarity of our own requirements also results into the delays.

Ethics in Purchase Management Functions:

Purchase Professionals are exposed to temptations & allurement. The degree of compromise depends on certain factors:
Moral Standard & personal values of an individual that comes from family culture Professional standards of the Purchase Department comes from the organization culture

Ethics in Purchase Management Functions:

Buyer-Seller Relationship should be cordial, based on mutual trust and interdependence Buyers and Sellers are partners in progress of the client organization Transparency And Speed are the best antidote to corruption Creating a culture of honesty

PURCHASE MANAGEMENT
Emerging Trends
OLIMFAS(On Line Integrated Materials And Finance Accounting System) e-Commerce ISO Quality Standards Phasing Out preferential treatment to PSUs FREE IMPORTS REGIME

Materials Management
Thank you