Mundra port and Special Economic Zone Ltd.

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Mundra port and Special Economic Zone Ltd.

One of the main Objective of Any Business is to earn MONEY

( Though there are other activities also, a company enters into market depending on

the vision and mission of the owner/promoters of the company )

Ours is a Business Organization to earn money. We try to earn Money by Manufacturing a Product and Selling it to a Profit. We try to earn Money by giving best Service and convert it to a Profit. How an Organization earns Money (Profit)?
By selling max. no. of products By selling at highest possible price By producing at minimum possible cost

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How a Manufacturing Organization Operates ?

Sales & Marketing Brings Order from Market

Design Designs a Product required by Market Planning Indents Material required to start Production Purchase Places Order and Get Material Stores Receives, Stores and Issues Material to Production Production Fabricates in Machine Shop and Assembles Quality Inspect incoming and Final Product

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Other Supporting Departments :

Maintenance Upkeep the Machine to achieve max. Production Finance & Accounts Manages Money, Receives & Make Payments Human Resources/Personnel/Industrial Relations Recruits Manpower, trains ITD Manages Computers, Printers, Software, ERP

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Mundra port and Special Economic Zone Ltd. Importance of Purchase dept.
Lets remember that one way that organization earns Money (Profit) is By producing at minimum possible COST

What is Cost ?
Material Cost Manpower Cost (Wages & Salaries) Overheads (Electricity, Taxes etc.)

What is Material Cost ?

Direct Material Cost Fabrication Raw Material Bought Out Components Indirect Material Cost Tooling, Consumables, Fuels

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Mundra port and Special Economic Zone Ltd. How Purchase can help in earning Profit ?
By arranging Material availability on time to ensure Production of Final Product required by Marketing to Sell. By Continuously reducing/ controlling the Price of Material being purchased. By getting the maximum Credit from the Vendors All this needs to find NEW sources and to maintain HEALTHY relations with GOOD Vendor

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Mundra port and Special Economic Zone Ltd. How Purchase can reduce Cost ?
By Negotiations with existing Vendors

Find New Sources who can offer Lower Rates

By using Tax Benefits given by Govt. MODVATE benefit on Excise Duty paid VAT Credit if Vendor is in same state of yours NIL Tax if the Vendor has got some Tax Exemption from Govt.

By minimizing Freight Cost Nearest Vendor Negotiating with Transport Planning well and avoid last minute Air Freight / Courier charges By Planning well and avoid last minute STD Calls and Tours By Helping Design to find alternate Product with Lower Cost

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Mundra port and Special Economic Zone Ltd. Why Purchase contribution is important ?
Total cost comprise of Material Cost Approx. 70-75% Labor / Overheads Approx. 25-30% Let us consider a saving of 1% in both Material Cost saving 0.7-0.75% of Total Cost

Labor & OH saving 0.25-0.3% of Total Cost

Increase in profit by saving in Materials is higher than same saving in labor In this age of competition, Sale price can not be increase beyond a point.

If Selling price is fixed, every Rupee saved adds to profit.

In this competitive world, Vendor are forced to look ways to reduce the Price to snatch the order, hence the possibility of Cost Reduction is more in Material despite increase in Row Material Prices.

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Mundra port and Special Economic Zone Ltd. Purchase Main Role :
Definition : Purchasing is a function of getting required materials in Right Quantity, of Right Quality, at Right Price, Right Time and from Right Source (Suppliers) . Five R becomes the objective of efficient purchasing. Right Quantity Right Quality Right Price Right Time Right Source (Suppliers)

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Mundra port and Special Economic Zone Ltd. Purchase Main Role :
Planning to avoid delays and unnecessary expenses like STD Calls, Tours, Airfreight or Courier charges. Rejection Handling: Keeping track of Rejections and taking corrective actions timely Cost Reduction Negotiations Skill Develop New Sources, Introduce New Products Availing Tax Benefits Reduce Fright Cost & Packing forwarding charges Inventory Control EOQ & ABC Analysis

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Mundra port and Special Economic Zone Ltd. What Purchase Buys ?
Bought Out Components

Switch Gear & Automation Products, Terminals, Relays & Relay Card,
Panel & Panel Accessories, Wires, Cables, Cable Accessories & Lugs, Bus bar Aluminum & Copper, Transformer, Rectifier, Capacitor & Chokes, Electrical Motors, Encoders, Lightings, Luminaries, Panel Meters, CT, PT etc. Stationery & Welfare Items Capital items, Civil items. Engineering Materials & Non Engineering Materials Spares, Packing Material & Toolings . IT materials like Computer, Laptop, Printer, Server & other accessories. Fuel and Consumables like Chemicals, Paints, Diesel, Petrol etc.

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Mundra port and Special Economic Zone Ltd. Procurement Process

Receipt of PR or Receipt of BOM. Check in SAP this material will coming first time or it was earlier purchased. Find Source (at least two) Sending Enquiry Receipt of Quotation Making Comparison Negotiating the Prices and Terms Finalizing the Source and Price Getting Approval from Management Raise Purchase Order Follow up with Vendor and Transporter for Dispatch Ensure Receipt of Material inside Factory (GRN by Stores) Payment to Vendor at appropriate stages (GRN received by Accounts and then Bill Passing) Resolution of any issues related to Vendor such as Quality, Payment, CForm, Rejection, Road Permit

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Mundra port and Special Economic Zone Ltd. Terms you should know
Basic Price, Discount Packing & Forwarding Freight Transit Insurance

Excise Duty, Sales Tax, VAT, MODVAT

Landed Cost Annual Order Annual Quantity Delivery Schedule Quantity and Delivery date Delivery Terms Payment Terms

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Mundra port and Special Economic Zone Ltd. Introduction to Commercial Terms

Excise Duty
Paid to Government by Vendor on Manufacturing
It is payable when Product moves out of Vendors Factory Premises Vendor charges from us in Invoice We get MODVATE benefit equal to Excise Duty paid if we use procured item for production To get the MODVATE benefit, we need Duplicate Copy of Excisable Invoice for Transporter along with Material. If it is misplaced, then MODVATE can be taken on Original Copy but it should be avoided Currently 10.3% ED Applicable 10% Excise Duty 2% Education Cess 1% Higher Education Cess

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Mundra port and Special Economic Zone Ltd. Introduction to Commercial Terms

Sales Tax
Paid to Government by Vendor on sale Vendor charges from us in Invoice

Types of Sales Tax

CST (Central Sales Tax) in case of Interstate Sale Currently 2% against C Form VAT (Value Added Tax) in case of Purchase from same state i.e. (Gujarat)

We get Credit back equal to VAT

Tax Invoice is required to get this benefit Currently there are two types 1. VAT & 2. Additional VAT

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Mundra port and Special Economic Zone Ltd. Introduction to Commercial Terms

Delivery Terms
Ex works ( We have to pay fright and transit insurance ) FOR Our works ( Free On Road vendor to pay fright, insurance )

Payment Terms
Advance Against Performa Invoice ( On readiness of material ) COD ( Cheque On Delivery to Transporter) Against Inspection report Credit - 30 Days, 60 Days, 90 Days, 120 Days PDC ( Post Dated Cheque) Letter of Credit Document thru Bank

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Mundra port and Special Economic Zone Ltd.

Sourcing Vendor Development

Vendor Evaluation Negotiation Skills Ordering Basis of ordering Order amendment Scheduling Skills Inward Logistics Dispatch by Vendor Documentation required along with material
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Follow up Cash Purchase

Rejection Handling After Material Receipt (Purchase) Bill Passing (By Accounts) Fund Plan Fund Allocation Report to be made by Purchase Head

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Mundra port and Special Economic Zone Ltd.

Special Thanks to:

M/S Batliboi Ltd. Mr. Puneet Aggarwal Mr. Vinod Patel Mr. J.N. Parikh M/S Cotmac Electronics (Surat) Pvt. Ltd. Mr. Prashant Desai Mr. Digvijaysinh Vihol M/S Welspun Corp Ltd. Mr. Kamal Somani

M/S Mundra Port & SEZ Ltd. Mr. Prashant Salgia Mr. Viral Gandhi
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Mundra port and Special Economic Zone Ltd.

Prepared By:
M/S Mundra Port & SEZ Ltd.
Mr. Shaktisinh Dodiya

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Mundra port and Special Economic Zone Ltd.

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