Management Services Division Management Services Division

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www.cygnusadvertising.com, 9830161350
SPEED
JULY, 2005
MANAGEMENT SERVICES DIVISION

ADITYA BIRLA MANAGEMENT CORPORATION LIMITED
Industry House, 17th Floor, 10 Camac Street, Kolkata – 700 017
Phone – 91-033-2282 5603/04, E-mail – msd@adityabirla.com MANAGEMENT SERVICES DIVISION
VISION
TO BECOME A ‘WORLD CLASS’
MATERIAL MANAGEMENT FUNCTION
AND THE MOST EFFICIENT MEMBER
IN THE SUPPLY CHAIN
MISSION
TO PROVIDE
GOODS & SERVICES, ONTIME,
AT BEST VALUE
TO OUR INTERNAL CUSTOMER
GROUP VALUES
The Purchase and Stores manual has been developed on the foundation of following group values –
INTEGRITY
Integrity is honesty in every action. The Material Management team should act and take decisions in a manner
that are fair, honest and follows the highest standards of professionalism. ‘Integrity’ should be the cornerstone
for all the deals, be it with customers, employees, suppliers, partners, shareholders, the communities or the
government.
COMMITMENT
Commitment is “Doing whatever it takes to deliver as promised”. Each one of the material management team
should take ownership for their work, teams and the part of the organization they are responsible for. Through
this value they shall build an even sharper results oriented culture that is high on reliability and accountability.
Their commitment is likely to make them a formidable leader and competitor in every market that they are
in.
PASSION
Passion is a missionary zeal arising out of an emotional engagement with work, which inspires each one to
give his or her best. All of the material management team are expected to be energetic and enthusiastic in
the pursuit of their goals and objectives. Material Management team should recruit and actively encourage
employees with a ‘Fire in the belly’. With this Value, they would build a culture of innovation and break-
through thinking leading to superior customer satisfaction and Value creation.
SEAMLESSNESS
Seamlessness is understood as thinking and working together across functional silos, hierarchy levels, across
business lines and geographies. Each one of the material management team shall demonstrate high level of
teamwork through sharing and collaborative efforts and garner the synergy benefits from working together.
Before the material managers can truly benefit from a borderless world, they need to build a borderless
organization. They should visualize free flow of knowledge and information across the Group.
SPEED
Speed is looked upon as responding to internal and external customers with a sense of urgency. They should
continuously seek to crash timelines and ensure expeditious completion of their tasks. Through this Value
they would build an agile and proactive organization that is prompt to respond to the present and future needs
of their customers.
l Integrity l Commitment l Passion l Seamlessness l Speed

ACKNOWLEDGEMENTS
We would like to put on record our deep appreciation for the valuable inputs
received during the course of preparation of this comprehensive manual from the
following group units:
l Hindalco Renukoot
l Birla Copper
l Indo Gulf
l Ultra Tech Cement
l SFD Nagda
l Hi Tech Chennai
l Birla White
l IRIL Veraval
l Grasim Chemical Nagda
l Indal Belgaum
l Birla Cellulosic
We would also like to make special mention of the support received from the following group
executives whose contribution was very significant for developing and finalizing this SOP:
l Mr. Om Prakash, Hindalco
l Mr. Arun Jani and Mr. Gitesh Shah, Birla Copper
l Mr. Ajay Singh, Indo Gulf
l Mr. Prashant Davangeri, Ultra Tech
l Mr. Dinesh Kalantri and Mr. Raghunath Panigrahi, SFD Nagda
l Mr. Manoj Kedia and Mr. Shireesh Jain, IRIL CFD

EXPLANATORY NOTE ON THIS SOP
This standard operating procedure has been prepared by putting together the Best practices within and out
side our group units. The aim is to standardise system and processes relating to materials management at
group units. Key features of the SOP are:
l The SOP provides the “as on date” best practices in the group and all units should endeavour to achieve
the current benchmark best practice.
l The SOP has been prepared keeping in mind that units in the group are of varied sizes. The SOP
provides for unit level flexibility while at the same time calls for uniformity of basic processes and
controls.
l While choice of the level for delegation authority is left flexible, the SOP mentions the overall delegation
structure for efficient working as well as adequate controls. The SOP has also listed the activities for
which delegation authority must be fixed in the individual unit’s delegation manual.
l Our group units are currently at different levels of IT enablement with regards to materials management,
this SOP has been based on “best systems” in the group and hence units may plan a phased up-
gradation of materials management IT systems/software which would be beneficial to the unit in the
long run. The SOP mentions suggested target dates
for IT enablement of key operations within materials management.
l In the SOP, formats for various Forms and MIS reports are given. While it would be ideal for all group
units to have a standardised format for the above it is however important that all features of the forms
and MIS reports are included in the units existing Forms and MIS reports.
l The SOP has provided lead times for internal operations of the Stores and Purchase functions which
are in line with group best practice. Units should endeavour to achieve or better these lead times.
l The SOP provides the suggested best process flow of materials and documents relating to materials
management and units should target to have material and document flow in line with SOP
recommendations.
l The SOP has also provided frequency of MIS generation and other activities such as physical verification,
review of inventory classification etc, units should keep frequency of such reports & activities in line
with SOP recommendations.
MAIN INDEX
SECTION - A
1. Procedure....................................................................................................................... 3
2. Schedule of Authority...................................................................................................... 6
3. Purchases....................................................................................................................... 7
4. Accounts........................................................................................................................ 31
5. IT System Administration................................................................................................ 33
6. Vendor Performance Assessment.................................................................................... 35
7. E-Auctions..................................................................................................................... 49
8. MIS............................................................................................................................... 51
SECTION - B
1. Indenting........................................................................................................................ 59
2. Stores............................................................................................................................ 63
3. Item Codification............................................................................................................ 99
4. MIS............................................................................................................................... 102
SECTION - C
1. Annexure A.................................................................................................................... 112
2. Annexure B.................................................................................................................... 114

SECTION - A

JULY, 2005
CONTENTS
TABLE OF CONTENTS
1. Procedure .................................................................................................................................. 3
2. Schedule of Authority ................................................................................................................ 6
3. Purchases .................................................................................................................................. 7
3.1 Identification and Registration of a Vendor ................................................................................... 9
3.2 Supplier Evaluation Report .......................................................................................................... 10
3.2.1 Parameters suggested to be considered for Final registration of the new vendor ..................... 14
3.3 Enquiries .................................................................................................................................... 15
3.4 Quotations .................................................................................................................................. 17
3.5 Raising of POs/ WOs ................................................................................................................. 19
3.6 Lead Time Fixation ..................................................................................................................... 22
3.7 Urgent / Verbal or Cash Procurement .......................................................................................... 22
3.8 Purchase Committee ................................................................................................................... 22
3.9 Annual Rate Contracts ................................................................................................................ 22
3.10 Item Register ............................................................................................................................. 24
3.11 PO Amendments and Cancellations ............................................................................................. 24
3.12 Pending Indent ........................................................................................................................... 25
3.13 Pending POs .............................................................................................................................. 25
3.14 Follow up activities ..................................................................................................................... 26
3.15 Measurement of Internal Performance Efficiency ......................................................................... 26
3.16 Job Work ................................................................................................................................... 28
3.17 Review Meetings ........................................................................................................................ 30
4. Accounts .................................................................................................................................... 31
5. IT System Administration ......................................................................................................... 33
5.1 Conversion table for unit of measurement ...................................................................................... 34
6. Vendor Performance ASSESSMENT and Appraisal – For existing vendors ........................... 35
6.1 Vendor Appraisal .......................................................................................................................... 35
6.2 Criteria for vendor appraisal .......................................................................................................... 35
6.2.1 Vendor rating based on delivery parameters ......................................................................... 35
6.2.2 Vendor Rating Based upon Material Quality ......................................................................... 38
6.2.3 Vendor rating based on service parameters .......................................................................... 39
6.2.4 Overall Vendor Rating......................................................................................................... 40
6.2.5 Vendor Grade .................................................................................................................... 40
6.3 Vendor assessment for Contractors and Service providers ............................................................... 42
6.4 Delisting of vendors ...................................................................................................................... 43
SOP-Purchase and Stores 1

CONTENTS
6.5 Vendor Assessment ...................................................................................................................... 43

6.6 Vendor Satisfaction Survey ............................................................................................................ 46
6.7 Vendor Awards ............................................................................................................................. 47
6.7.1 Suggested criteria for vendor awards are ............................................................................. 47
6.8 Vendor Relationship ...................................................................................................................... 48
6.9 Blacklisting of vendors .................................................................................................................. 48
7. E-Auctions ................................................................................................................................. 49
7.1 Suggested Standard Terms and Conditions ...................................................................................... 49
7.1.1 Asset Disposal ................................................................................................................... 50
7.1.2 Process scrap, obsolete & surplus ....................................................................................... 50
8. MIS ............................................................................................................................................ 51
8.1 Daily/Weekly reports .................................................................................................................... 51
8.1.1 Pending Indent status .......................................................................................................... 51
8.2 Monthly Reports ........................................................................................................................... 51
8.2.1 Overdue Purchase Orders .................................................................................................. 51
8.2.2 Cenvat status ..................................................................................................................... 51
8.2.3 Response time/ Lead time ................................................................................................... 51
8.2.4 Report on process efficiency of material management .......................................................... 52
8.2.5 Discrepancies/ shortage/ damage report .............................................................................. 52
8.2.6 Acceptance and Rejection Summary ................................................................................... 52
8.2.7 Losses ............................................................................................................................... 52
8.2.8 Outstanding Advances ........................................................................................................ 52
8.2.9 Outstanding Payments ........................................................................................................ 53
8.2.10 Internal Customer Satisfaction Survey ................................................................................. 53
8.3 Quarterly Reports ......................................................................................................................... 53
8.3.1 Internal performance efficiency measurement report ............................................................ 53
8.4 Bi Annual Reports ........................................................................................................................ 53
8.4.1 Vendor Satisfaction survey report ........................................................................................ 53
8.4.2 Vendor Performance report ................................................................................................ 53
8.4.3 Report of percentage of A rated vendors ............................................................................. 53
8.5 Annual ......................................................................................................................................... 53
8.5.1 Annual Rate Contracts ....................................................................................................... 53
8.5.2 Vendor and Industry development ........................................................................................ 54
8.5.3 Cost Reduction and Containment ......................................................................................... 54
8.6 MIS proforma formats .................................................................................................................. 54
2 Management Services Division

PURCHASE
MATERIAL MANAGEMENT
1. PROCEDURE
The Materials Management process should be a fully integrated IT processed system.
ACTIVITY CHART
Get the Store the approved
material material at
Inspected specified location
Sends intimation for material inspection

Material Issue voucher
User Dept Stores
Material
Dept.
Material Purchase
Request / Indent Purchase Department GRN & other Materials &
documents Invoice
Overdue PO Status submission
Material Management System
Allocated
Enquiry
Budgets
(Creates vendor database
Quotations
in the system)
Payment
planning Vendors
Finance/
Accounts Selects and places PO
Financial concurrence Order Acceptance
Payment to vendors
GRN
Figure 1: Procurement activity chart showing Material Management integrated workflow
The above figure portrays the fully integrated material management process.
The Inventory integration with the User department and the Purchase department is designed to address
stock replenishment needs.
l Finance/Accounts department provides item/group wise allocated budget to the purchase department at
the beginning of the year.

PURCHASE
l Information about stock items is available to the user departments.
l A requisition for stock passes from user department to stores. Requisition for purchases/indent is passed
from user department to purchase department.
l Vendor database is created in the system by the Purchase department.
l Enquiry is floated by the Purchase department to Vendors.
l Vendors, based on the specification of required raw material, submit their quotations to the Purchase
department.
l The Vendor is evaluated and selected by the Purchase department and P.O is placed with the vendor.
l Vendor confirms the order.
l Vendor delivers the material along with the invoice to the Stores department.
l The material specified to be tested at the laboratory is sent for lab analysis and other items are inspected
by the User department.
l After approval, the inspected material is put to safe custody at the specified place for storage.
l When the goods are approved, goods receipts are entered and referenced to a purchase order number,
ensuring accurate posting of deliveries to each purchase order line. Auto work flow alert is generated in
the Purchase and Accounts department after creation of goods receipt note for bill passing.
l Stores department sends the invoice to the Accounts department along with all the required documents.
l Both the Purchase and the Stores department share the information on items, requisitions, purchase
orders, and goods receipt note.
l Stock moves from Stores to User department.

PURCHASE
l Purchase department gives the payment planning for the month to the Accounts department.
l Accounts department gives financial concurrence to the Purchase department.
l Purchase department informs user department on status of overdue PO.
l The Accounts department shares purchase order information from Purchasing and updates the invoiced-
to-date amount on the purchase order real-time.
l Finally payment is made by the Accounts department as per the terms of payment to the vendors.

PURCHASE
2. SCHEDULE OF AUTHORITY
Standardisation of delegation authority is necessary for institutionalisation of systems. Every unit should have
only three levels of defined delegation authority – The Initiator, The Recommender and The Approver.
This will allow both adequate control and speed of execution. A delegation authority level should be
made separately for Raw Material, Stores & Spares and Capex items. In our highly diversified group, which
has large, medium and small size units, the units should set their our guidelines for approvals, authority levels
and responsibilities for indenting, purchase and stores function according to the functionality and unit’s size,
however adhering to the three level delegation authority.
Delegation Authority
Level 3 Approver
Level 2 Recommender
Level 1 Initiator
Raw Material Stores and Spares Capex items
Figure 2 : Levels of Delegation Authority
Unit’s Material Management Delegation Manual should specify the levels and limit of delegation
authority for at least the following activities:
l Indent Approval
l Indent cancellation

PURCHASE
l Indent for items in excess of the warranted limit.
l New vendor approval
l Special approval for doing business with vendors related to any employee or director of the
Aditya Birla group companies.
l Amendment of vendor master
l PO approval
l Emergency, verbal or cash purchases
l Amendment and/or cancellations of POs
l Exceptional extension of bid opening dates and extension of job completion date.
l Price increase for job contracts.
l Advance to vendors
l Hold payment authorisation
l Delisting of vendors
l Blacklisting of vendors
l Adjustments required to be made in the books for significant discrepancies identified as a result of
physical verification of inventory.
3. PURCHASES
The Purchasing department helps manage the entire procurement cycle. This cycle includes requesting,
competitive bidding, buying, vendor development and appraisal. Purchase department’s day-to-day decision-
making should be fully supported with tools and information availability on-line to manage the supplier base
and service the purchasing function in a timely and efficient manner.

PURCHASE
The following figure shows the activities performed by the Purchase department:
User Dept. Purchase department Vendors Stores department
Raises Receive &

Indent verify Indent
Return to No Indent
Indentor Ok or not
Contracts - New & Yes
Renewal
Indent for
auto indented
items
Regular Yes
Inform Qty to Sends
contract suppliers Material
item
No
Receive Enquiry
Float enquiry & send
Quotation
Receive offers &
prepare
comparatives
Technical
approval by
indentor if any
Negotiation & Receive offer &

Finalisation of sends
PO/contract confirmation
Receive confirmation,
obtain internal
approvals & send PO Receive PO
to suppliers
Receive materials
and arrange for
Follow up for timely Sends Material inspection
delivery
Inform and return to No Items

supplier accepted or
not ?
Arrange replacement Yes
from supplier
Prepare GRN and
approve for Bill
Passing
Figure 3: Work flow in Purchase department

Head (Purchase) should be responsible for overall purchase activities.

PURCHASE
3.1 Identification and Registration of a Vendor
New Vendor Selection processes should be developed on the basis of individual unit’s need.
The need could be:
l New Item
l Emergence of New Technology for manufacturing process and Material of Construction
l Generate competition
l Compress Lead Time
New vendors can be identified by any of the following ways:

Introduction letters by vendors, vendor visit, reference by group units, references by others, User
department, internet/ providing a standard web site for the vendors to indicate their credentials and
areas / commodities / services offered by them, yellow pages, trial and error, putting advertising in
the media and through Industrial finder.
The following figure shows the process of new vendor selection by the purchase department:
Purchase Department Vendors
Set vendor selection

parameters
Identify new Prepare request Solicit quotes

vendors Provide quotes
for quotes from vendors
Prepare
comparative bids
Obtain Technical
recommendations
Select technically
acceptable and low bid
vendors
Generate P.O. & Receive orders and

place trial orders send samples
Figure 4: New vendor selection process

PURCHASE
3.2 Supplier Evaluation Report
l New vendors must fill the Vendor Evaluation Report.
l New vendors should be evaluated by the Technical department, if required.
l New vendors should be recommended & approved as per the unit’s delegation manual.
l Special approval as per the unit’s delegation manual should be taken for doing business with
vendors related to any employee or director of the Aditya Birla group of companies. The
declaration from the vendors for the same should be taken in the vendor evaluation report. In
such cases IT System should generate system alert, so that timely formalities can be performed.
l There should be two sets of vendor records, one of empanelled Vendors and the other of
Registered Vendors.
q Empanelled Vendors- Will be all those Vendors who have indicated their willingness to
enter into business with the unit.
q Registered Vendors: Will be those Vendors who are finally selected and would be eligible
to get inquires according to NORMs set. Registered Vendors would get enquiries through
an automated system. Any exclusion or inclusion (for any reason what so ever, should be by
explicit approval of departmental head specifying the reason).
l New vendors should be allotted provisional vendor code with status marked as temporary.

PURCHASE
Unit’s form should contain the following information as shown in the suggested Vendor Evaluation Report form:
SUPPLIER EVALUATION REPORT
1 Name of the Supplier :

2 Address :
a. Factory / Ware House :
b. Office :
c. Email address :
d. Banker’s address :
3 Fax / Telex No. :
4 Telephone ( s ) :
a. Factory / Ware House
b. Office
5 Nature of Business: Manufacturer / Sole Selling Agent / Dealer / Trader / Agent / Assembler
6 Nature of the Company : Proprietor / Partnership / Private / Public Ltd .
a. In case of Proprietory / Partnership Co :
i) Proprietor/Partners Name :
ii) Address :
iii) Telephone No. :
b. In case of Private / Public Ltd. Co. :
i) Chief Executives Name :
ii) Address :
iii) Telephone No. :
7 For clarifications persons to be contacted :
Name Designation Address Phone No.
8 Brief Details of Product / Classes , Types of Equipment , Supplies and Material which can be supplied by you.
9 Are any regulatory requirements applicable to your product / process with respect to :
a ) Environment (Yes / No)
b ) Safety (Yes / No)
Contd...

PURCHASE
10 If yes , enclose evidence of compliance : - Annexure No.

11 Are you complying with requirement of SA 8000?
12 Are you registered under ISO – 9000?
13 If no, do you have documented quality system : (Yes/No)
14 Do you have a quality manual : (Yes/No)
15 List of five main clients :
Name of Organisation Address & Contact Person Products Value of supplies

Phone No. with designation supplied in last 2 years
16 Annual Turnover ( Value )

( Last Three years )
17 Do you have any Local Branch / Office / Agents ?
If so, please furnish details with address, Phone no. and contact person.
(Applicable only to outstation sub-contractors).
18 If you are an Authorised Dealer / Representative, please furnish documentary evidence .
19 Name and address of your Bankers .
20 Please enclose Balance Sheet of last 3 years
21 Value of total Capital Employed .
22 Value of orders in hand .
23 Income Tax Registration number:
24 With holding Tax / Sales Tax registration number ( Applicable for Local Dealers )
25 Central Sales Tax registration number
26 PF No. (For contractors)
27 SSI registration number
28 TIN Number
29 Excise registration number
30 Excise duty applicable in %
31 VAT registration number
32 Applicable VAT rate (%)
33 Are your products covered by warranty, if so, state period & scope of warranty .
34 List of customers from Aditya Birla group
35 Relationship with AVB Group’s Employee/ Director (if any)
36 List of enclosures.
( For Company’s use )
Recommendations :
Head (Purchase )
Decision on Registration :- or
Date Head (Commercial )
Contd...

PURCHASE
APPLICABLE TO MANUFACTURER SUPPLIER
1 Duration for which factory is in production.
2 Total production capacity per annum for items required by Company
3 Capacity available for the Company
4 Total number of employees on date
i) Production
ii) Quality Control
5 Details of Machinery in operation :
6 Raw Materials specifications and their sources :
Product Specifications Source
7 Please furnish details available for testing and inspection facilities.
8 Brief details of production process and quality control .
9 Has your product been tested by any independent agency / reputed Test House. (Yes/No)
If so, indicate details .
10 Do you inspect both the materials bought and materials inprocess, give details.
11 How do you inspect/ verify finished products ? Give details on inspecting and testing set up, if any .
12 How are the non – conforming products identified , documented & disposed off ?
13 What Statistical Tools are employed in the company for product control and process capability .
14 Types of packaging and marking on the product .
15 Procedure for dealing with the customer complaints and responsibility for dealing with the same ?
16 Future Plan
a) Expansion Programme.
b) Additional Test Facilities
c) Installation of New Machinery
17 Any additional information you would like to furnish .
Figure 5 : Suggested Standard Supplier Evaluation Report

PURCHASE
3.2.1 Parameters suggested to be considered for Final registration of the new vendor :
l Quality
l Price
l Savings potential (to be evaluated for Long Term)
l Competence to supply and Financial Strength
l Market Reputation - IT clearance for last 2 yrs and Compliance with central/ state
rules & regulation
l Delivery
l After Sales service
l Stability
Units should consider the above parameters and assign individual weights for final supplier
registration based on criticality of equipment.
l After 1 trial order, the above parameters should be reviewed and evaluated and if found suitable,
the Vendor should be included in the approved vendor list with temporary vendor code. The same
should be re assessed after six months of performance and if satisfied the vendor code should be
finalised.
l Registration form should be filled in for all new vendors.
l Unit should not conduct business with the unapproved and/or unlisted vendors.
l Vendor master should be reviewed on an annual basis. It can be amended only by the authority as
per the unit’s delegation manual.
l Expiry dates of the ISO certificates of the vendors should be monitored on a bi annual basis.

PURCHASE
3.3 Enquiries
l Based on the indents received, enquiry for quotations should be floated within 2 working days to
all the registered suppliers detailing the specifications, quantity, delivery and other commercial terms.
l Proper item wise vendor link should exist for each group and sub group of items supplied by the
same vendor to avoid duplicate entry of vendor details against each item separately.
l Enquiry for an item should be floated to all the vendors listed in the vendor directory for a particular
item.
l As per requirement, Email, Telephone, Postage, Fax, Internet can be used for floating/ communicating
enquiries to vendors. There should be a yellow page linkage for items and the registered vendor list
for that item so that enquiry automatically goes to the respective vendors via email. Sending enquiries
by faxes / post will be required for those vendors who do not have email facility.
l An enquiry can contain one of many materials of a material group (for example 1.5", 1" bolts etc.
which have separate material codes, should be part of a single enquiry).
l Every enquiry should have only one last date of receipt of quotation from vendors.

PURCHASE
Units format should contain the following information as shown in the suggested format for sending enquiries to vendors:
ENQUIRY FOR PURCHASE
M/s. Enquiry No.:

Enquiry Date:
Fax No. : Bid closing date:
Tel No. : Contact Person :
Email:
Attn . :
You are requested to send your best offer for the item(s) listed below.:
Sl. No. Item Description UOM Qty Delivery Packaging Rate Type (ex works/ Freight (if Value
Code schedule FOR) applicable)
TERMS & CONDITIONS

Quotation must reach us within a stipulated due date addressed to the Contact person.
Quotations received after due date are liable to be rejected.
Please indicate in your quotation source of shipment: Your own works / Your sub vendor.
Please indicate the taxes and duties explicitly in your offer. Quotation inclusive of taxes without its breakup are liable to be
rejected.
Please indicate the make offered against each item.
Please indicate your best prices and delivery terms clearly in your Quotation.
Please mention transportation charges if Ex works rate is quoted.
Contact person mentioned above may please be communicated with in case of any clarification.
PLEASE INDICATE EXCISE DUTY RATE WITH CHAPTER HEADING/SUB HEADING AND YOUR EXCISE
REGISTRATION NO., EXCISE RANGE & DIVISION. WE MAY NOT ENTERTAIN YOUR QUOTATION WITHOUT
CHAPTER HEADING IN CASE OF EXCISABLE ITEM.
Please mention your VAT registration number and the applicable VAT %.
For
Authorised Signatory
Note :
1. Please fill in our ENQUIRY FOR PURCHASE and fax/mail it back.
2. Please quote our Enquiry number in all your future correspondences for faster response.
3. Computer generated statement, hence not signed.
Figure 6: Enquiry format

PURCHASE
3.4 Quotations
l Quotations should be received by email within the required by date mentioned in the enquiry
form. Where the vendors do not have email facilities the same can be received through Post /
Fax. Auto acknowledgement of receipt of quotation can be sent through email wherever possible.
l Vendor wise comparatives should be prepared for each item. The comparatives should highlight
the initial offer and the final negotiated rate.
l Quotations should be recorded in the IT system.
Units quotation format should contain the following information as shown below in the suggested format:
Indent No. UNIT: Date:

XXXXXXXX
PRICE COMPARATIVE CHART
Dept Code:
Technically acceptable Tech. not acceptable
Sr. Item Qty Unit A B Lowest Existing D E

No. Description
Quoted Negotiated Quoted Negotiated Quoted Quoted
Rate Value Rate Value Rate Value Rate Value Rate Value Rate Value Rate Value Rate Value
TOTAL PRICE
Packing and
Forwarding
Sub Total
Excise Duty
VAT/ Sales Tax/CST
TOTAL
Cenvat
Freight Charges
LANDED COST
PAYMENT TERMS
DELIVERY
GUARANTEE
REMARK, IF ANY
Figure 7: Comparative statement of quotations received from indigenous vendors

PURCHASE
Material Supplies-Foreign & Indigenous Sources:

Indent No. : XXXXXXX UNIT: Date:
Dept.code: PRICE COMPARATIVE CHART
Sr. Item Qty Unit Technically Acceptable

No. Description A (India - CUR. = INR) B (USA - CUR. = US$)
Quoted Negotiated Quoted Negotiated
Rate Value Rate Value Rate Value Rate Value
ITEM
Sub Total
Discount
Price Ex-Works
P & F Charges
Price FOB
Sea Freight Charqes (approx.)
C& F Price
Insurance
SUB-TOTAL
Exchange rate
Landing charges/ Packing Charges
Assesable value (Rs)
CD
CVD / ED
Cess on CVD / ED
TOTAL
Cess / Sales Tax/VAT/CST
Less : Landing Charges
Less: Cenvat
TOTAL
Clearing charges *
Inland freight
LANDED COST (In Rs.)
Delivery period
Payment term
Offered Rate Validity
Delivery Terms
*Clearing charges:
Assesable value (Rs.)
Clearing charges
Service Tax
Custom examination expenses
Labour charges
N-form charges
Preparation and B/E passing
Stamp duty charges
Total clearing charges
Figure 8: Comparative statement of quotations received from indigenous and foreign suppliers

PURCHASE
l There should be two stages of Bid Sheet, one with detail as provided above and another in summary
form giving only the landed values to facilitate decision making. (if required by the unit.)
l All calculations must be system supported.
l Bids to be approved on online system with provision for text entry to record special considerations
for decision making, if any.
l Quotations should be sent to the Technical department for their evaluation and any remarks if
required.
l Vendors should be selected on the basis of documented norms for selection as mentioned above
within 5 working days of offer closure date.
3.5 Raising of POs/ WOs
l PO approval as per delegation manual should be done through IT system.
l All purchases should be separately categorised as Indigenous and Imported purchases.
l All POs should specify Rate, Qty, Value, Taxes and duties, Item description, Terms and conditions,
Delivery Schedule, Late delivery, Standard/specifications (where necessary), Packaging requirements,
Marking/labelling (where applicable), Sampling and inspection requirements (if any)and Discounts.
In case of imports the PO should additionally specify Shipping documents, Insurance, Freight and
Guarantee/Warranty.

PURCHASE
Units format should contain the following information as shown below in the suggested format of Purchase Order:
PROFORMA PURCHASE ORDER

Works : Company Name :
Phone : ( Regd. Office : ) Dist. :
M/s. Indent No.: Purchase Order No.: Excise VAT /S. T. FORM
Indent Authorisation date: Purchase Date : VAT l Required
l Will Follow
Vendor Code: Terms of Payments: Discount : C.S.T. : l Attached
Ref.: Delivery Point : Sl. No.
L/R : State Tax
Mode of Despatch : Date
Please arrange to supply the following against this order in accordance with the terms & conditions stated below:
Sl. Item Material Order UOM Required Delivery Schedule Unit Required Value
No. Code Description Qty Qty Price payment
Delivery date Month Year date
VAT @ %
Total Rs.
Department Code : Central Sales Tax Regn. No.Dated Excise Regn. no.
(Indent Initiator) Recommeder Approver State Sales Tax Regn. No. /VAT No. For (company’s name)
Figure 9: Purchase Order
l Individual units will have their own purchasing terms and conditions. Variations in individual
units might be due to nature of items. The following shows suggested standard clauses that
should be included in a Purchase Order:
q Documentation – It should mention all the documents that need to be sent along with the challans
and invoices.
q Delivery – It should mention where the goods need to be delivered.
q Payment terms – It should mention the standard payment terms.
q Price basis – It should mention whether the price is Ex works or FOR basis or any other.
q Mode of despatch – It should mention the designated transporter.
q Freight – It should mention as to who will bear the freight.
q Insurance – It should mention on whose account insurance cover would be charged.

PURCHASE
q Octroi – It should mention whether the same would be applicable or not and to who’s account.
q Excise – It should specify the applicable rate and amount of Excise Duty.
q Sales Tax – It should mention the applicable rate of CST and/or State Sales Tax .
q VAT – It should mention the applicable VAT rate.
q Packing and Forwarding – It should mention whether the rate includes the packing and forwarding
charges. Otherwise the same should also be separately mentioned.
q Delivery Schedule and commitment – It should mention the required delivery schedule of the
material.
q Risk Purchase clause - In case of failure to meet the commitment whether additional charges for
getting material by any other supplier/alternate arrangement would be deducted from the original
supplier concerned.
q Inspection – It should mention whether pre dispatch inspection is required to be done at supplier’s
end or not. It should also mention whether the final inspection at the unit’s factory will be binding or
not.
q Rejection – It should clearly mention who will bear the cost and risk of “to and fro” transportation
in case of rejections and the days within which the same should be lifted from the factory stores.
q Penalty clause - It should contain a penalty clause for late supply/ short supply/ excess supply/
improper packaging/ bad quality delivery etc.
q Termination – On what conditions will the company have the right to terminate the order and
whether the company would undertake any liability for such cancellation as a compensation, damage
or otherwise.
l In cases of staggered delivery, the staggered delivery schedule should be mentioned in the PO copy if
the schedule is known with certainty at the time of issue of PO. Else if the requirements are flexible, the
required by date should be mentioned against the PO reference column as and when the requirements
are placed with the vendors.
l As soon as the Indent no. is keyed in the IT system, all the details from the purchase requisition
should automatically be captured from the IT system, i.e. Item code, Description, Order
Quantity, Required quantity and Delivery schedule.

PURCHASE
l The order should be communicated to the vendor by any of the following modes - Wide Area
Network/Fax/Postage/Courier/E-mail
l The order should be placed within 2 days of vendor selection/ bid approval.
3.6 Lead Time Fixation
l Purchase department should fix standard lead time of procurement for all items. The lead time
should be available to user department online for them to effectively plan their material requirements.
3.7 Urgent / Verbal or Cash Procurement
l Emergency or verbal, purchases should be done in a restricted manner with or without cenvat
benefits.
l It should be approved by the approving authority as per the unit’s delegation manual. The authorised
value limit of purchases should be specified in the unit’s delegation manual.
l POs for emergency purchases should be properly documented in the following course of action.
l There should be defined category of items for cash purchases such as printing, stationery etc. Limits
of cash purchases should be fixed for such items.
l PO for cash purchases need not be made.
3.8 Purchase Committee
l A purchase committee should be formed comprising of personnel from Purchase department, Finance
department and Technical department. This committee will take decisions for high value purchases.
l Individual units should decide on the value limits for referral of high value purchases to
purchase committee.
3.9 Annual Rate Contracts
l Items which are ordered atleast once in a month (regular in nature) should be covered under annual
rate contract.
l The suggested general clauses which should be included in all the rate contract clauses are as
follows:
q Rate – It should specify the contractual rate or the reference document.

PURCHASE
q Make – It should specify the Brand if any.
q Discount – It should specify discount (in percentage/absolute amount/linked to Price List)
q Excise Duty – It should mention ‘as applicable’ and to provide proper documents to claim
CENVAT
q CST – It should mention whether it is nil against C form/production of necessary documents

and specify the amount of order to be procured through dealers.
q Entry Tax/Octroi – It should specify to whose account Entry Tax/Octroi would be charged.
q VAT – It should specify whether VAT is applicable or not and the applicable percentage.
q P&F - It should specify to whose account P & F would be charged.
q Price Basis – It should specify the price basis (FOR/Ex works).
q Price Change – It should specify in case of price change, when would the revision be applicable.
q Payment terms- It should specify the credit period.
q Insurance - It should specify to whose account Insurance would be charged.
q Delivery - It should specify the delivery period or terms of delivery.
q Mode of transportation – It should specify the mode of transportation and on whose account
would transportation be charged.
q Packing requirements – It should specify the type of packing required.
q LD clauses – It should specify the amount of charges to be deducted for late delivery.
q Inventory – It should specify that the parties should maintain inventory of regular items in their
godown/ premises all the time.
q Penalty – It should specify on what infringement would this clause be applicable and the amount
to be charged for the same.
q Risk Purchase clause – In case of failure of party to supply at required time, whether the
buyer has the right to debit supplier’s account for additional charges incurred by the former for
procuring the material from some other sources of supply.

PURCHASE
q Material Acceptance – It should specify terms and conditions in case of rejections.
q Quantity variation – It should state the terms of conditions if there is variation in the receipt
quantity.
q Warranty & Guarantee – It should mention warranty and guarantee of the quality of the
material supplied for.
q Test Certificate – Whether test certificate is required to be submitted along with each supply
or not.
q Test witness charges – Whether any third party inspection is required and the charge applicable
for the same.
q Documentation – Mode of providing the documentation.
q Validity – It should specify the period for which the contract would be applicable.
q Termination – It should specify the point of termination and what would be the right of termination
by the parties involved before expiry.
3.10 Item Register
Purchase department should prepare and maintain an Item Register in the IT system.
The following figure shows a standard format of Item Register.
Sl. Vendor Vendor Group Code Item Code Item description UOM Shelf life
No. Code Name (if any)
Figure 10: Proforma of Standard Item Register
The item register should be updated every year incase any addition or deletion in the list is made.
3.11 PO Amendments and Cancellations
l Amendment and/or Cancellations of POs should be authorised by the authorised persons as

per the unit’s delegation manual.
l PO should not be amended for reducing the quantity below the quantity received material.
PO should not be amended after full receipt of material.

PURCHASE
3.12 Pending Indent
l Purchase department should run an online pending indent status report on a daily basis to
place orders in time. Weekly report of urgent/ emergency indents and monthly
consolidated report of normal indents should be generated for tracking performance
efficiency. It is suggested that weekly review should be done at the operating level at
the user department and the monthly reviews to be done at the Functional level.
The following figure shows suggested report on pending indents generated by the IT system:
Department Indent Auth Dt. Item Item Ordered Req. Req. UOM Estimated Remarks
Code No. of Indent Code Description Qty. Qty. Date Value
Figure 11: Pending Indent report
3.13 Pending POs
IT System should generate monthly reports on POs pending for deliveries segregated with its ageing as suggested below:
Item wise Age summary - Yet to be Due PO Item wise Age summary - Over Due PO
From To Items Value From To Items Value
(Rs./L) (Rs./L)
0 15 Days Buyer Code - 0 15 Days
16 30 Days 16 30 Days
31 60 Days Name : 31 60 Days
61 90 Days 61 90 Days
91 120 Days 91 120 Days
121 150 Days 121 150 Days
151 180 Days 151 180 Days
181 365 Days 181 365 Days
366 730 Days 366 730 Days
> 730 Days > 730 Days
List of Pending Purchase Orders as from date : / / To : / / Date:
Dept. Indent Indent Item Item P.O. P.O. Vendor Vendor Qty. Reqd. by Delay P.O.
Code No. Date Code Desc. No. Date Code Name Order Recd. Pending UOM Date Days * Value Remarks
* Note: Delay days should be automatically calculated by IT system through formula i.e. (System Date - Reqd. by date)
Figure 12: Report on Pending POs

PURCHASE
l Purchase department should give online feedback to user department about status of Overdue
PO.
l Timely deliveries should be monitored by generating reports on delivery overdue enlisting the
items pending for delivery a week before the delivery is pending and items pending on due
date. The same should be reconciled against items received vis a vis pending report.
3.14 Follow up activities
l Weekly auto online reminders should be sent to accounts department for making due payment
to the vendors as per the P.O payment terms. The details of this would be available on line in the
system against GRN creation.
l Purchase department should send monthly advance payment planning advice for the next
month to the Accounts department against invoices with on-line information support and checks.
However, this process could be further re-engineered by full development of IT system to
eliminate Purchase department intervention. The same can then be generated by the Accounts
department itself.
The suggested format for the same is as shown below:
Payment Planning Advice Statement as on 31/ /
P.O. P.O. Supplier Supplier Qty. Order GRN GRN Payment due Advance Balance
No. Date Code Name Recd. Value No. Date date Paid Amount due
Figure 13: Suggested Standard report for payment planning advice
l Weekly follow up with the supplier for delivery of material should be done by the Purchase
department. Web based follow up for over due delivery should be introduced with vendors
who have such facilities.
l Purchase department should follow up on a monthly basis, the number of times production has
been affected/stopped for want of material.
l Purchase department should follow up with vendors for replacement of rejected materials.
3.15 Measurement of Internal Performance Efficiency
l Purchase department should monitor lead times to assess the internal performance of its activities
and set SLA’s (Service level agreements) for services to its internal customers.

PURCHASE
The purchase department should monitor the following lead times:
l Time taken from approved indent by stores department to issuance of enquiry flotation
l Time taken from indent to issuance of purchase order
l Simultaneously the purchase department should show the time lost (if any) in getting technical
clarification from Indentor.
l After receipt of offers the time taken for vendor selection and for placement of order.
l Purchase department should measure actual lead time specifically for critical items against the
set standards.
The following figure shows the suggested standard format to measure variance between set and actual lead times for
procurement of critical items:
Lead Time Statement of major critical items

Sl. 2002-03 2003-04 2004-05
Item Description
No. Target Actual Target Actual Target Actual
Figure 14 : Suggested format for measuring lead time for critical items
l The purchase department should evaluate its performance efficiency on a quarterly basis.
Standard performance evaluation parameters is suggested below:
Sl. Performance parameter Unit July –Sept. Target July-Sept.

No. 2003-04 2004-05 2004-05 2003-04
1 Purchase Related Parameter
2 No.of indents received (Avg.) Nos./Month
3 No. of Pos raised Nos./Month
4 PO/Buyer Nos./Month
5 PO/Buyer Value/Month
6 Urgent indents %
7 Ordering Time (Overall) Days
8 No. of Indent Processed Nos./Month
9 Indent Processing time Days
10 Pending Indents Nos./Month
11 Over Due Orders Nos./Month
12 On time receipt of material %
13 Stock outs Nos./Month
Figure 15 : Suggested Standard Performance Evaluation Parametre

PURCHASE
The targets for each performance measure should be set based on past year’s performance.
l The quarterly performance MIS should be reviewed by Commercial Head/ Materials Head.
l Purchase department should measure annually the material cost inflation index for critical
items to arrive at the actual cost of material over a period of time in real terms (after adjusting for
effects of inflation/deflation). This also provides an indicator for the negotiating efficiency of the
purchase department.
3.16 Job Work
l Departments should provide work indents to purchase department by specifying the nature,
expected cost and detail working of a particular job.
Unit’s format should contain the following information as shown in the suggested format for work indent:
Work Indent
Department : Last Supplier: Indent No:
Work Mobilisation Date: Last WO No.: Date :
Work Completion Date : Last WO Date: Block Code :
Estimated Value : Last WO Rate: Capital/ Revenue:
Sl. Work Code Detail of Works Unit Qty. Rate Value With/Without Remarks
No. Material
Enclosures : Tick for the type : Remarks:

i) Imported/Indigenous
ii) Service Contract
iii) Work Contract
iv) Maintenance Contract
Initiator Recommender Approver
Figure 16: Standard format for Repairs/ Job work
l Following are the suggested clauses to be included in any work order contract:
q Scope of work- It should specify the detailed scope of work.
q Material – It should specify who will be responsible for arranging the materials.
q Transportation – On whose account would transportation be charged.
q Consumables, tools and tackles – On whose scope would supply of consumables,

tools & tackles be.
q Rates – It should specify the payment rate and what is included in the rate.
q Payment terms – It should specify the credit period.

PURCHASE
q Taxes and duties – It should specify to whose account taxes & duties would be.
q Retention money – It should specify if any amount would be retained for the durations of the
contract or beyond.
q Performance/Workmanship guarantee – Whether there would be any guarantee period

after completion of the work.
q Inspection – Who will be responsible for inspection during the progress of the work at site.
q Risk Purchase clause – In case of failure to meet the commitment whether additional charges
for getting the work done by other contractor/s would be deducted from the original contractor
concerned.
q Termination – On what occasion will the company have the right to terminate the contract
before completion of the work.
q Work Completion and final bill certification - The work completion as well as the bills
should be certified by the concerned user as per the order terms and the name of the person
responsible to authorise should be mentioned in the order itself.
l Tenders should be floated for each work indent except where rate contract exists.
l There should be fixed rate contracts for regular job work, repetitive in nature. For e.g. rate contracts
can be fixed for refractories, insulation, horticulture, repeated hiring of machines and major civil
works.
l Rate contracts should be annually reviewed.
l Tenders should be floated or communicated through email/ post/ fax/ internet/ Newspapers.
l Standard work proposal should be prepared and sent to each potential contractor.
l The vendors should visit the site of job order before submitting the tender.
l Atleast three offers for the tender should be received. In case of proprietary items, know how etc
atleast two offers for the tenders should be received.
l Tender date should not be extended but for exceptional cases.
l Exceptional extension of bid opening dates and extension of job completion date should be approved
on value basis by Unit Head. Price increase should be approved as per delegation manual.
l Tenders should be opened only on a particular day.
l The details of a procurement should not be disclosed to an unsuccessful bidder (this is called
“debriefing”).

PURCHASE
l Unit should not play one Vendor against the other, disclosing one’s price and inviting the other to
beat it. This is called “bid shopping” and is considered unethical. However, keeping L1 offer in
mind, making a counter offer or expected price is not unethical. Of course, first counter offer or
expression of expected price has to be to the L1 Bidder.
l Documents to be maintained for Job work includes cost analysis, work order, indent, offers,
comparative bid analysis, sanction form, approval papers, annual rate contracts, declaration of
goods for job work, challan for movement of goods from one processor to another processor,
stock registers, outward gate pass and inward records.
l A work order of order value Rs.1 should be raised by the purchase department so that the
item sent out for repairs comes under the pending PO list for effective monitoring.
The POs should have an extra flag to indicate that the POs are for repair items.
Price comparative chart should be prepared for the quotations received for annual job contracts
as shown below :
Work Indent No. XXXXXXXX UNIT: Date

Dept. Code: PRICE COMPARATIVE CHART
Sr.No Work Description Qty Unit Technically Acceptable Tech. Not Acceptable
A B Existing C D
GROUP A L1
Quoted Negotiated Quoted Negotiated (Last) Quoted Quoted
Rate Amt. Rate Amt. Rate Amt. Rate Amt. Rate Amt. Rate Amt. Rate Amt. Rate Amt.
1 L
2 M
SUB TOTAL (A)
GROUP B
4 X
5 Y
SUB TOTAL (B)
Grand Total (A+B)
1 Work Completion Within 2 Weeks Within 1 Week

2 Payment
3 Guarantee
4 Remark, if any
Note:
Service tax 10.2% shall be paid extra. However the same shall be Cenvatable and hence, the effective price shall not be affected.
Legends:
L1. Lowest Rates
Figure 17 : Comparative statement of quotations received for work activities-Indigenous Sources
3.17 Review Meetings
l Stores and purchase review meetings with all the user departments should be organised on a
monthly basis on pre defined dates.

PURCHASE
4. ACCOUNTS
The following figure shows the details of the Current Accounts Payable process :
Stores Accounts Vendor
Prov. GRN converted to final GRN

& approve for Bill passing
Receive auto work flow alert from

Auto work flow alert for bill passing Stores IT System and monthly
goes to Accounts department payment advice plan from Purchase
Check for due date, payment

amount and Create payment
(debit entry)
Is it an Yes
inventory Update GL
item?
Print and send cheque Receive
No cheque
Update PO End End
Figure 18 : Overview of Accounts payable system
l As soon as the stores department updates and approve GRN for Bill passing auto work flow should go
to Purchase and Accounts department. After receiving the payment advice, Accounts Payable system
should perform the invoice audit and approval functions by checking invoice details such as amounts,
unit price, terms, tax, freight, etc. against the purchase order. Data entry effort would be minimal,
because invoice details would be built from the purchase order and would be displayed on-line. Accounts
payable department concerned person will deal only with the exceptions, resulting in maximum efficiency
with full control.
l Accounts department monitors timely payment to the creditors. Accounts department should monitor
process efficiency for this activity, as until this is accomplished, vendor relationship can not be managed
well.
l Cheques to the vendors should be sent/ handed over to vendors by Accounts section as a measure of
internal control and the same should not be handled by purchase department.
l There should not be any outstanding payments except in exceptional circumstances.

PURCHASE
l E payment system should be initiated through banks like HDFC/ ICICI or any other banks.
l System should enlist the payments to be made specifically during the discount period to avail of cash
discounts. The same should be monitored on a daily basis.
l Online reconciliation of accounts should be done with those vendors who have online facilities. Atleast
all the ‘A’ class vendors should be targeted for the same.
l Advances to vendors must be properly authorised by the concerned person as per the unit’s delegation
manual.
l Net amount due to and/or from should be paid/ received from the vendors who are also the customers
of the company.
l System should enlist the items on which cenvat credit has not been taken.

PURCHASE
5. IT SYSTEM ADMINISTRATION
There is a strong need felt for a common material management software system across the
group. To start with atleast the same businesses should have common material management
softwares. This will also facilitate common item codification.
l The IT Materials Management systems should maintain accounting integrity through integration with the
General Ledger.
l Distribution entries from purchase orders, Accounts Payable and Inventory issues and replenishments
should be validated directly against the General Ledger.
l Offsetting cash, assets accounts, and encumbrances are automated through the accounting rules or
system policies to ensure accounting accuracy.
l The integration of the Materials Management functions with the budgetary control function provides the
funds-checking capability required.
l All the documents generated should be serially numbered.
l All Purchasing, Accounts Payable, and Inventory transactions (commitments, encumbrances, inventory
consumption and replenishment, and expenditures) are checked real-time to the available fund amount
calculated through budgetary control functions.
l Real-time funds checking ensure expenditures are kept within the authorized budget and provide advance
knowledge of the budgetary status for purchase spend decisions.
l Multiple levels of Password / Security should be there in the IT system to restrict access to authorized
users only for creation or correction operations as the case may be. A user rights table should be
defined for this purpose.
l Online help facility should be available in the system.
l Backup and Restore options should be there in the system. It should be able to recover corrupted
database.
l There should be user defined Input Fields in the IT system.
l Monthly process feedback should be given to the IT section.

PURCHASE
5.1 Conversion table for unit of measurement
l A conversion table for units of measure will be provided for items that have alternative units of
measure.
l Different units of measure may be used for the purchase of materials such as Ltrs, kg, pcs, ml,
tons, nos., bottles, rolls etc. The same unit of measure should be used for the inventory stock
and issue of materials in the IT system. However efforts should be made to use only Metric units
of measure. Units of measures like Boxes, Bags etc. should be avoided. If necessary, it must be
quantified in terms of basic units of measure, like Box consisting of 20 pcs. or Bottle containing
100 ml. etc.

PURCHASE
6. VENDOR PERFORMANCE ASSESSMENT AND APPRAISAL – FOR EXISTING VENDORS
Unit should conduct Vendor Quality Systems Appraisal and Development.
6.1 Vendor Appraisal
l Quarterly /or At least Half yearly vendor rating should be done for all the critical items on
the above criterias.
6.2 Criteria for vendor appraisal
Vendor should be appraised on the following criterias:
l Product Quality - 50% weight is to be assigned on quality parameters
l On-Time Delivery - 40% weightage is to be given to “on time delivery” - where on

time delivery is on time delivery in FULL (OTIF).
q When the performance evaluation is carried out, the measurement of timely delivery in case
of staggered delivery should be done from required by date to material received date as and
when part consignment is received.
l Service – 10% weightage is to be given.
6.2.1 Vendor rating based on delivery parameters :
Delivery rating basis will be as per the delivery terms defined in the PO.
If any shipment is past due and there are no receipts for the same, then such transactions
should be considered and delay days will be the difference of SYSTEM DATE and
SHIPMENT DATE.
Units could assign individual weights for delivery delays. Suggested ideal weightage
to be given for vendor rating for delivery is given below:
Q1 + Q2 (1 - C)
DR = —————————— x 100
Q
Where Q = Total quantity ordered
Q1 = Quantity received on or before desired delivery schedule.
Q2 = Quantity received after the desired delivery schedule

PURCHASE
C = 0.1 x No. of days delay for quantity received beyond due date.
e.g. 80% of material is received as per desired schedule & 20% received after 10
day’s delay.
80 + 20 (1 - 10 x 0.1)
DR = ———————————— = 80%
100
e.g. 80% of the material is received in time & 20% after 20 days.
80 + 20 (1 - 20 x 0.1) 80 - 20
DR = ——————————— = ———— = 60%
100 100
Calculation of Delivery Rating:

Vendor rating will be calculated for each shipment level,
Let QTY= hipment quantity
QTY1 = Quantity received in Receipt-1
QTY2 = Quantity received in Receipt-2
QTYn = Quantity received in Receipt-n
R1 = Vendor Rating for QTY1
Rn = Vendor Rating for QTYn
Then vendor rating R for Shipment Quantity

QTY = (QTY1 * R1 + QTY2 * R2 + …. + QTYn * Rn ) / (QTY1 + QTY2
+ …. + QTYn)
Effect of Short supply of shipment quantity on delivery rating:
For the short supplied quantity below the lower tolerance limit specified in shipment, calculate the rating
for the shipment quantity (not the lower limit with tolerance). If the supplied quantity is within the tolerance
limit, then receipt quantity should be treated as equal to shipment quantity.
If PO has been closed/ amended because of abnormal delays, then it will have zero rating for the short
supplied quantity.

PURCHASE
Effect of Excess supply of shipment quantity on delivery rating:
If any received quantity is greater than shipment quantity then the received quantity should be treated as
equal to shipment quantity. Negative marks should be considered for excess supply (in excess of the
tolerance limit) to deter suppliers from adopting such practices.
The following figure shows the suggested detailed report layout on delivery rating :
VENDOR WISE DELIVERY PERPORMANCE MONITORING

For the Month ………………..
Vendor Code & Name
Days Item PO No. Required Required Qty delivered Delivery date Qty delivered Excess/ Delay value of ‘C’ Rating (%) Grade
Code by date Qty as per reqd. after reqd. after reqd. Shortage days
by date by date by date
a b c d e f g h i={e-(f+h)} j = (g - d) k = (0.1 * j) L= [{f + h(1-k)} / e] * 100
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Average Monthly rating
Figure 19 : Vendor Delivery Rating detailed Report

PURCHASE
6.2.2 Vendor Rating Based upon Material Quality :
The following figure shows the detailed report layout on quality rating :
Detail Report layout
For the period from: To : Date :
Sl. Supplier Site PO Item Item UOM Shipment Qty accepted with grade Qty Total
No. Code Description qty as per Rejected Quality
PO Rating
Name Code No. Date QA1/QA2/QA3 QA4 QA5 QA6
Figure 20 : Vendor Quality Rating detailed Report
INDEX :
1. QA1 is the Quality code - Best Quality also QA2 &QA3 acceptable quality
2. QA4 is the Quality code - Accepted with minor deviation without financial impact
3. QA5 is the Quality code - Accepted with deviation with financial impact up to 5%
4. QA6 is the Quality code - Accepted with deviation with financial impact more than 5%
5. In case of wrong rejection by QA but subsequent acceptance by re-inspection QA will change the
Quality code from earlier rejected code of QA6 to QA1 or QA2 or QA3 as the case may be.
Units should assign individual weights to the above parameters.
Suggested weights are as follows:
Sl. No. Quality Weightage Rating

1 Material accepted with Quality Code QA1, QA2 & QA3 50 50
2 Material accepted under Deviation Quality Code QA4 45 45
5 Material rejected 0 0

PURCHASE
Calculation of Quality Rating:
Vendor rating will be calculated for each shipment level as given below:
Let QTY = shipment quantity
QTY1 = Quantity received with Grade as QA1
QTY2 = Quantity received with Grade as QA2
QTYn = Quantity received with Grade as QAn
Rn = Vendor Rating for QTYn
Then vendor rating R for Shipment Quantity
QTY = (QTY1 * R1 + QTY2 * R2 + …. + QTYn * Rn ) / (QTY1 + QTY2 + …. + QTYn)
6.2.3 Vendor rating based on service parameters :
Service ratings should be done on the following suggested parameters with the following
weights:
S1 - Cooperativeness and readiness to help in emergencies 5%
S2 - Readiness and promptness to replace rejected material 3%
S3 - Providing support documents in time 2%
Units can assign individual weights to the above parameters.
The following figure shows the summary report layout on Service rating
SUMMARY REPORT LAYOUT FOR SERVICE RATING

Sl. No. Supplier’s Supplier’s Supplier’s Item S1 S2 S3 SR= (S1+S2+S3)/100 Remarks
Name Code Site Supplied
S1 - Cooperativeness and readiness to help in emergencies

S2 - Prompt replacement of rejected material
S3 - Providing support documents in time
Figure 21: Vendor Service Rating summary

PURCHASE
6.2.4 Overall Vendor Rating:

l Overall rating will be a sum of Delivery rating, Quality rating, Service rating.
The following figure shows the overall supplier performance rating report layout prepared on atleast half yearly
basis:
SUMMARY REPORT LAYOUT FOR OVERALL RATING
Sl. No. Supplier’s Supplier’s Supplier’s Item Quality Delivery Service SQR Supplier Remarks
Name Code Site Supplied grade
Figure 22: Supplier Quality Performance Rating (SQR)
6.2.5 Vendor Grade:
l Vendor Grades are calculated as follows:
If Over all Vendor Rating > = 85% then Vendor Grade = ‘A’
If Over all Vendor Rating > = 65% and < 85% then Vendor Grade = ‘B’
If Over all Vendor Rating < 65% then Vendor Grade = ‘C’
l Quarterly Communication of vendor ratings to under performing (c rated) vendors

and annual communication should be given to all the vendors.
l Head (Purchases) should be responsible for evaluating the Suppliers performance.
l Computerized Vendor Performance appraisal and Feedback should be available.
l The Purchase department should recommend areas of improvement to vendors and

assists them in upgrading their Quality Systems.

PURCHASE
The following figure shows the standard format for communicating the performance feedback to vendors:
Layout for External Communication Page ______ of _____

< Organization Address As being printed on PO> Date : _________
Rating Period From:._______________________________ To ___________________________

Vendor Code:__________________________________ Vendor Email: _________________________
Vendor Name: _________________________________ Vendor Contact: _______________________
Vendor Address: _______________________________
Dear Sirs,
As you are aware, we are doing vendor rating on quarterly basis. The vendor rating is based upon the following:
Aspect Weightage
a Quality 50%
b Timely delivery 40%
c Service 10%
Quarterly ratings of 3 preceding consecutive quarters are considered at the time of ordering. For example, order I placed
between October - December shall be on the basis of rating between January & September. Vendor rating is having direct
bearing on the share of business, other things remaining the same. The vendors have been rated based on the performance
which is as under:
Sl.No. Grade Rating Category
1 A 85-100 Excellent
2 B 65-84 Good
3 C < 64 Poor
<message-text>
The actual rating is as under:
Oct.’02-June’03 July’02-March’03 April’02-Dec.’02

<A> <B> <C>
We look forward to your commitment in this regard.
Thanking you,
Yours faithfully,
For
Authorized Signatory
Contd........

PURCHASE
Text Messages:
<message-text>
Case 1. If current rating is better than both the earlier ratings then message-text should print as
‘We find that there is an improvement in over all rating. We are confident that you will strive and get
EXCELLENT rating in all times to come’
Case 2. If all the 3 ratings are ‘C’ then message-text should print as
‘We find that you are regularly falling in POOR category. Kindly improve your rating to enable us to have
business relationship’.
Case 3. If all the 3 ratings are’A’then message-text should print as
‘We are pleased to inform you that you have been rated EXCELLENT in last 3 assessments.’
Case 4: If current rating is lower than earlier ratings, then message-text should print as
‘We find that there is deterioration in the vendor rating. We would like you to ensure that you work towards
achieving EXCELLENT rating’.
Case 5: If all 3 ratings are B, then message-text should print as
‘We find that you have been continuously rated GOOD, we would like you to ensure that you work towards
achieving EXCELLENT rating’.
Figure 23: Standard format for external communication to vendors
l Purchase department should monitor percentage (%) of “A“ rated vendors.

l Rating of last 3 consecutive assessments shall be mentioned in current approved vendor list.
6.3 Vendor assessment for Contractors and Service providers
l Vendor rating and grading should be extended to ‘A’ class contractors and service providers covering
top 20% of the contracts within the next 12 months. It should be extended to all the contractors
and service providers by end of December 2006.
l The rating should be done on the 4 suggested parameters mentioned below with the
following weights :
q Price 25%
q Statutory Compliance 25%
q Performance with respect to assigned jobs 25%
q User Satisfaction 25%

PURCHASE
6.4 Delisting of vendors
l Vendor who has been graded as ‘C’ for two consecutive quarters should be given warning for
improving their performance.
l Vendor who is rated as grade ‘C’ for 4 consecutive quarters should be “considered for delisting”.
Final decision should be taken by appropriate authority as per unit’s delegation manual considering
various aspects associated with the nature of item.
l Inoperative vendors with whom units have not done any business for atleast 2 years should be
delisted.
6.5 Vendor Assessment
l Two means of fostering the partnership approach with vendors should be followed atleast for
key and proprietory items:
q To commit long term agreements with Vendors in exchange for discounts, favourable credit
terms and other benefits.
q To share the savings when they identify cost reductions.
l Need based training should be provided to vendor’s workers and supervisors.
l Joint improvement projects should be taken with vendors.
l There should be periodical onsite visit to the vendor’s place. Schedule for such visits should be
drawn in advance.
The following figure shows the proforma schedule drawn in advance for onsite visit to vendor’s place:
SCHEDULE FOR ON-SITE VISIT TO VENDORS' PREMISES DURING THE YEAR
Months
Item
Description April May June July August September October November December January February March
P A P A P A P A P A P A P A P A P A P A P A P A
RAW MATERIAL
Figure 24 : On site visit schedule to vendor’s place

PURCHASE
Onsite visit report should be made by the visiting committee.

The following figure shows the onsite visit report layout :
ON SITE VISIT REPORT

Sl. No. Particulars Observations
1 Name of person who has visited
2 Name and place of vendor visited
3 Name of person contacted/discussed with
4 Prime purpose of visit (specify)
a Problem related
b Development
c Follow up
d Continuous Capability Assessment
5 Observations/comments :
a Observation about set up
b No. of production line and capacity
c Testing and quality control facility
d Having any documented QMS/EMS
e Operating capacity at the time of visit
f Stock of raw material for our product
g Scheduling of various job and our position in schedule
h General financial condition
i Industrial relation condition
j Vendor’s input inventory/procurement position
k Any other observation important to our Business
6 Overall comments :
a Problem related :
i Problem clearly understood by concerned officials (Yes/No)
ii Concerned officials have concern for our problem (High/ Hoderate/ Low)
iii Commitment to resolve the problem (by Mr…………………….) (Yes/No)
iv Availability of necessary resources to resolve our problem (Yes/No)
v Any other comments
b Developmental Related :
i Our development requirement is clearly understood (Yes/No)
ii Vendor is having necessary resources including R&D to make the development
as per our requirement (Full/Partial)
iii Commitment to make the development (by Mr………….……….) (Yes/No)
iv Agreed/expected date of first result of this development
c Continuous Capability Assessment related :
i Vendor’s capability to manage resources for us (High/Moderate/Low)
ii Vendor’s commitment to execute our requirement in terms of :
l Quality (Better/Good/Fair/Poor)
l Quantity (Better/Good/Fair/Poor)
l Timely delivery (Better/Good/Fair/Poor)
l Other Services (Better/Good/Fair/Poor)
Comments of HOD Purchase
Signature :
Date:
Name of visiting officer:
Contd.....
PURCHASE
EVALUATION ON ENVIRONMENT, SAFETY AND SOCIAL ACCOUNTABILITY ASPECTS
Sl. No. Particulars Max. Mark Marks Obtained
A ENVIRONMENTAL
1 Adequate measures are taken for disposal of process & hazardous waste 10
2 Surrounding area is adversely affected by manufacturing process
(water, noise, air. soil) 10
3 Equipped with monitoring of pollution level 10
4 Accredited with ISO 4001 or any other certificate or willing to obtain
the same 10
Sub total 40
B HEALTH & SAFETY
1 Employees are found working under “safe working condition” and
using safety/PP equipment while working 10
2 Adequate fire extinguisher available. 10
3 Medical facilities provided/available in nearby area. 10
Sub total 30
C SOCIAL ACCOUNTABILITY
1 No child labour is engaged in the company 5
2 No discrimination is done on the basis of sex, cast & religion 5
3 Employees are made to work 48 hours a week 5
4 Employees are given one day off in seven days 5
5 Overtime is paid at premium rates 5
6 Salary/compensation is made to all employees as per Minimum Wages Act. 5
Sub total 30
Total 100
Rating (above 90% - A, 80-90% - B & below 80% -C)
Sl. No. MARKING CRITERIA Rating
1 Physical verification of elements during on site visit, verification of

documents, evidence etc. 90% and above
2 Verification through visual inspection 79 – 80%
3 Verification based on information provided by Vendor 60 – 70%
4 Special remarks shall be given, if marking is given below < 60%
Figure 25 : Suggested Onsite Visit Report
l Original Registration Document / Previous Visit report should form the basis for the above
evaluation.

PURCHASE
l There should be a visiting committee for onsite visit to vendors place.
l The visiting committee should comprise of a Cross functional team - Purchasing, User and
Quality/Engineering department
l The visiting committee should decide on the schedule for vendor visits of all the critical items.
Atleast 12 vendor visits should be targeted in a year.
l Vendor meet should be organised annually.
l Key customers should be visited with vendors.
6.6 Vendor Satisfaction Survey
l Vendor satisfaction survey should be carried out annually.
l Suggested parameters are as follows:
q Prompt Payment
q Service level at the time of receiving material. (For e.g. time taken in receiving the material
by the unit,. Handing over of the stamped documents etc.)
q Feedback on their supply
q Support from unit (E.g Training and Development)
q Dispute Settlement Process
l Survey should be conducted by floating questionnaire to vendors before the vendor meet. The
feedback should be discussed in the vendor meet.
l Action plan with the vendors should be drawn for next year.

PURCHASE
6.7 Vendor Awards
l Best Vendor Awards and Special Vendor Achievement should be declared in the vendor
meet on an annual mandatory basis.
l There should be three categories of vendor awards. Suggested categories are:
q Packing & Raw Material
q Engineering
q Service
l Three awards should be there for all the above three categories.
l Momento or certificates should be given to all the ‘A’ grade vendors.
6.7.1 Suggested criteria for vendor awards are:
l Product Quality
l On-Time Delivery
l Quality System Certification & Calibration of test equipment
l Attitude / Co-operation
l New Development to Improve Quality or Reduce Cost
l Process capability / statistical process control (CPK/ SPC)
l Use of QC Tools & Techniques
l 5-S, Kaizen suggestion scheme (KSS),Quality circles (QCC)
l Training

PURCHASE
6.8 Vendor Relationship
l Regret letters should be issued to rejected applicants. However, this is at the discretion of the
individual unit.
Suggested format for the same is given below:
To, Date _______________

M/s. ____________________
Sub : Your request for Enlistment as our vendor for supply

Dear Sir,
With reference to your letter ref : dtd. sent along with filled vendor registration
form. Please note that we have gone through your credentials and regret to inform you that we will not be able
to register your name in the list of our supplier due to reason(s) mentioned below :
1. The product is not suited technically.
2. Your credentials do not meet our requirement.
3. Documents attached/information provided is incomplete.
4. Other reason/reasons _________________________.
We may again consider your request in future on fulfilling the above criteria. This is for your information.
Best Regards,
For
GM, Materials
Figure 26: Standard suggested format for regret letters
6.9 Blacklisting of vendors
Under the following circumstances, unit should blacklist a vendor:
l Vendor who adopts unfair and unethical practices.
l Vendors against whom litigation cases are pending with other group units.
l Vendors who have caused substantial loss/ delay to the unit.
l Vendors are blacklisted after approval by the Unit Head and/ or HOD (Materials).
l Record of “Black listed vendors” with reason should be maintained by the Purchase department
and circulated to all the group units.
l Business should not be resumed with blacklisted vendors.
l It is at the discretion of other group units whether they want to continue business with the
vendors who have been blacklisted by other group units.

PURCHASE
7. E-AUCTIONS
E-auction increases process Efficiency, Speed and Transparency.
7.1 Suggested Standard Terms and Conditions
The suggested standard terms and conditions to be entered into with the concerned parties
are as follows:
q Brief scope: It should specify the detailed scope of the contract. It should mention the scope of
work relating to receipt, inspection and invoice processing leading to payment.
q Rate validity: It should specify the validity period of contracted rate.
q Effective date of Contract & Delivery: It should specify the effective date of order and the
delivery terms.
q Payment Terms: It should clearly specify the payment terms.
q Rejection/ Replacement: It should specify the terms in cases of rejections and replacements
and should mention on whose account the transportation would be charged for the same.
q Penalty: It should specify on what grounds penalty would be levied.
q Taxes and duties: Whether landed cost would include taxes and duties, if not, to whose account
taxes and duties shall be.
q Documents: It should specify the required documents to be submitted.
q Price: It should specify the basis of Price fixation.
q Packing & Forwarding: It should specify on whose account will this be charged.
q Inspection: It should specify the units’ right to get the material inspected by third party and the
course of action to be followed in case of variations.
q Disclaimer: It should specify whether the unit has the right of rejecting the contract.

PURCHASE
q Site Management, Technical Support, Lab Set-up & Manpower: It should specify who will
be responsible for providing the same.
q Risk Purchase clause: In case of failure of party to supply at required time, whether the unit will
have the right to debit supplier’s account for additional charges incurred by the former for procuring
the material from some other sources of supply.
7.1.1 Asset Disposal:
Web based disposal system should be followed for asset disposal by end of
March 2006.
7.1.2 Process scrap, obsolete & surplus:
Disposable like, process scrap, obsolete & surplus etc. should also be done through the
E Auction tool.

PURCHASE
8. MIS
Listed below are internal management information requirements for the Purchase activity. This information
should be available to Purchase Heads and designated internal review officials on a periodic or on as
requested basis. This is not an all-inclusive list of internal information requirements for the Purchase
function. Each unit must determine the specific management information needs necessary to manage
its material management programs. Each unit must also determine whether the information should be
provided on hard copy reports, through system queries, or both.
The query screen in the IT system should provide at least the following types of management information:
8.1 Daily/Weekly reports
8.1.1 Pending Indent status:
l This weekly report provides the details of the indents pending for processing by Purchase
department.
8.2 Monthly Reports
8.2.1 Overdue Purchase Orders:
l Monthly number and value of overdue Purchase orders.
8.2.2 Cenvat status:
l This report gives a list of items whose cenvat claim is pending.
8.2.3 Response time/ Lead time:
l The time interval from the point indent is raised to its approval on the basis of type of
indent raised.
l The time interval from the date a customer enters an order to the date the material is
received by the customer and recorded. This may be calculated based on average wait
time for all customer orders or on a statistically valid sample.
l Time interval from vendor finalisation to order placement.

PURCHASE
l The time interval from the date user department raises an order to the date PO is raised
by the Purchase department.
l Time interval from required date of payment to actual payment date.
8.2.4 Report on process efficiency of material management:
l This will give a consolidated report from raising of indents to passing of bill status at one
glance to monitor process efficiency at each level.
8.2.5 Discrepancies/ shortage/ damage report:
l The numbers and types of discrepancies found between items ordered and received. This
enables managers to identify potential problem areas in the ordering and distribution processes.
It is supported by detailed information on specific discrepancies to support follow-up and
resolution activities.
l The percentage of reports of item discrepancies filed with suppliers and types of discrepancies
being incurred to the total number of buys by suppliers. This indicator is useful in evaluating
the performance of suppliers providing items to an agency.
8.2.6 Acceptance and Rejection Summary:
l The number of items received, accepted, and rejected from each supplier. Supplier wise
percentage rejections should be used to evaluate the performance of suppliers and in re
reconciling with payment and general ledger posting activities.
8.2.7 Losses:
l Quantities and amounts of losses resulting from destruction, shrinkage, and pilferage. Such
losses that are determined to be unacceptable shall be investigated, the causes for the losses
identified, the responsible individuals identified, and appropriate actions taken to limit the
recurrence of such losses.
8.2.8 Outstanding Advances:
l This report will list down the cases of outstanding advances given to the vendors.

PURCHASE
8.2.9 Outstanding Payments:
l This report will list vendor wise outstanding payments.
8.2.10 Internal Customer Satisfaction Survey :
l This report will give customer satisfaction feedback on Materials Management Team. An
average score of 4 on a scale of 5 should be targeted for each parameter. Responses from
all the internal customers should be collated and action plan should be drawn addressing the
improvement areas.
8.3 Quarterly Reports
8.3.1 Internal performance efficiency measurement report:
l This report will indicate the internal performance efficiency of purchase department and
should be reviewed by commercial head.
8.4 Bi Annual Reports
8.4.1 Vendor Satisfaction Survey report :
l This will provide a feedback on vendons satisfaction.
8.4.2 Vendor Performance report:
l This will provide vendor wise performance evaluation.
8.4.3 Report of percentage of A rated vendors:
l This report will show percentage of A rated vendors.
8.5 Annual
8.5.1 Annual Rate Contracts:
l Volume of transactions transacted through aggregated or standing offer arrangements;

PURCHASE
8.5.2 Vendor and Industry development:
l There shoud be a report on the targets to identify potential local vendors; Numbers of firms
involved in local vendor development programs; and Number of new sources of particular
goods or services.
8.5.3 Cost Reduction and Containment:
l This report shows the total cost saved in a year (Budgeted vis a vis Actual ) For eg.
q Reduced stock holdings and improved payment terms;
q Level of savings due to New Contract/Vendor Arrangements or Purchasing Initiatives;
q Value of negotiated additional benefits;
q Cost reduction due to using an alternative good or service;
q Value of improved warranties;
q Savings due to improved waste management;
8.6 MIS proforma formats
Suggested standard formats for MIS reports have been included in their respective sections.
Other suggested formats are shown below:
1) The following report shows overall report on process efficiency of material management:
Raising of Indent to Passing of Bill status
Indent Indent Pr Pr app PO PO Item Item PO GRN GRN Ins GRN app Bill Bill Payment
No. dt. dt. dt. No. Dt. Code Desc. qty. No. Dt. Date date dt. no. dt.
Figure 27: Process Efficiency report

PURCHASE
8) The following shows Internal Customer satisfaction survey format:
INTERNAL CUSTOMERS SATISFACTION SURVEY

Materials Management - Stores and Purchase Department
Roles and Responsibilities of Supplier Department Rating:
1. Procurement of Material 5: Excellent ( 90% and above)

2. Preservation and timely availability of material 4: Very Good (80%-89.99%)
3. Vendor development and cost reduction 3: Good (70% -79.99%)
4. Issue of Material 2: Average ( 60% - 69.99%)
5. Liasioning with external agencies 1: Not Satisfactory < 60%
6. Work Contract Finalization
Customer Dept: Period:
Overall Rating
Sl. No. Services Suggestion for Improvement
Max. Score Assigned
1 Procurement of Material
a Purchase Order release in requisite time 5
b Material receipt as per Delivery Schedule 5
c Quality of Material 5
d Availability of auto items 5
e Emergency Purchase 5
f Vendor development 5
2 Issue of Material
a Time taken for material issue 5
b Proper storage/Preservation 5
c Emergency Issues 5
3 Work Orders
a Time taken to finalise WO 5
b Emergency Service 5
Rating
Sl. No People Orientation
Max. Score Assigned Suggestion for Improvement
1 Data Facilitation - Online / Off line 5
2 Attitude/Behaviour 5
3 Help in Emergencies 5
Suggestions, if any.
Any critical incident you would like to report Sign of HOD (Customer Dept)
Figure 28: Internal Customer Satisfaction Survey Report

PURCHASE

Roles and Responsibilities of Supplier Dept Rating:
Rating
Sl.
Services Departments
No. Max.
1 2 3 4 5 Avg.
2 Issue of Material
b Proper storage/Preservation 5
3 Work Orders
Sub Total A 55
B People Orientation
Sub Total B 15
Grand Total 70
Figure 29: Departmentwise Internal Customer Satisfaction Survey Report

SECTION - B

JULY, 2005
CONTENTS
TABLE OF CONTENTS
1. Indenting ............................................................................................................................................... 59
1.1 Indent cancellation ............................................................................................................................... 62
2. Stores .................................................................................................................................................... 63
2.1 Inventory Classification ....................................................................................................................... 63
2.1.1 Insurance Inventory .................................................................................................................... 63
2.1.2 Auto Indented Items ................................................................................................................... 64
2.1.3 User Specified/ Departmental Indentable items ......................................................................... 64
2.1.4 Critical Inventory ......................................................................................................................... 64
2.1.5 Non Critical Inventory ................................................................................................................. 64
2.2 Regular /Fast Moving User Indented Inventory ..................................................................................... 65
2.3 Slow Moving User Indented Inventory .................................................................................................. 65
2.4 Non Moving User Indented Inventory ................................................................................................... 65
2.5 Fast / Slow / Non Moving Auto Indented Inventory .............................................................................. 65
2.6 Surplus Inventory .................................................................................................................................... 65
2.7 Obsolete Inventory ................................................................................................................................. 65
2.8 Auto Indenting ........................................................................................................................................ 65
2.9 Inventory Control .................................................................................................................................... 71
2.9.1 Ideal stock of Music 3D .............................................................................................................. 73
2.10 Inventory Valuation ................................................................................................................................. 75
2.11 Accounting and Monitoring of Zero value items .................................................................................... 75
2.12 Accounting for Stored Items .................................................................................................................. 75
2.13 Delivery/Receipt of Materials ................................................................................................................ 76
2.14 Verification/Inspection of the Goods and Raising of GRNs (Goods Receipt Note) ............................... 78
2.15 Rejection/Discrepancies ......................................................................................................................... 80
2.16 Procedure for Re-inspection of Material ................................................................................................ 85
2.17 Material Storage in the stores ................................................................................................................. 85
2.18 Issue of Material for consumption .......................................................................................................... 87
2.18.1 Issue for material for Repair Job Work....................................................................................... 89
2.19 Basis of Material Issue for all store items .............................................................................................. 90
2.20 Physical verification ................................................................................................................................ 90
2.21 Block Sanctions ...................................................................................................................................... 92
2.22 Measurement of Internal Performance Efficiency ................................................................................ 92

CONTENTS
2.23 Scrap disposal ......................................................................................................................................... 94

2.24 Review Meetings .................................................................................................................................... 98
3. Item codification ....................................................................................................................... 99
4. MIS .................................................................................................................................................. 102
4.1 Daily/Weekly reports ............................................................................................................................ 102
4.1.1 Consumption report ................................................................................................................... 102
4.1.2 Details of items received/ Daily arrival ..................................................................................... 102
4.1.3 Days Supply .............................................................................................................................. 102
4.1.4 Consumption report for urgent/specific indents by users beyond set norms ............................. 102
4.2 Monthly Reports ................................................................................................................................... 102
4.2.1 Consumption report ................................................................................................................... 102
4.2.2 Inactive / Slow moving stock .................................................................................................... 103
4.2.3 Item Expiration/Shelf Life ......................................................................................................... 103
4.2.4 Repair Status ............................................................................................................................. 103
4.2.5 Inventory Turnover .................................................................................................................... 103
4.2.6 Stores Inventory ageing report .................................................................................................. 103
4.2.7 Response time/ Lead time ......................................................................................................... 103
4.2.8 Report on process efficiency of material management............................................................. 103
4.2.9 Losses ....................................................................................................................................... 103
4.2.10 Scrap ......................................................................................................................................... 104
4.2.11 Surplus/Obsolete ....................................................................................................................... 104
4.2.12 Internal Customer Satisfaction Survey ...................................................................................... 104
4.3 Quarterly Reports ................................................................................................................................. 104
4.3.1 Internal performance efficiency measurement report .............................................................. 104
4.4 Bi Annual Reports ................................................................................................................................ 104
4.4.1 Physical verification of Inventory of high value items .............................................................. 104
4.5 Annual .................................................................................................................................................. 104
4.5.1 Master Inventory/ Inventory report........................................................................................... 104
4.5.2 Cost Reduction and Containment .............................................................................................. 105
4.6 MIS proforma formats ......................................................................................................................... 105

INDENTING
1. INDENTING
l For each cost centre, Item wise quantity budgeting for consumption and Inventory must be done
before the start of Financial Year by the department concerned. New Items (not consumed in past)
should have separate budget. Budgets must be approved by the competent authority. Based on this
budget the Purchase department should prepare the purchase budget.
l Approving authorities should exercise utmost caution before any indent is processed to ensure its
need, requirement of quantity or substitute. Facility for online approval of indent should exist. A
screen for approving indents will be provided for each user department. Indents, which are not
approved, will not be available to the Stores/Purchase department for further processing.
Figure 1 below shows the process of Indent approval and processing by the user department
○
○
Requisitioner / User dept. Approver as per HOD Finance / Stores Purchase
○
○
○
○
delegation manual Budgeting dept. dept.
○
○
○
○
○
○
Enter Urgent /
○
○
requisition Normal
○
○
○
○
online requisition
○
○
○
○
○
○
○
○
○
○
Within Indent Requisition
○
○
Yes Approved ? Yes
○
○
Budget ? checking sourcing
○
○
○
○
○
○
No
○
No
○
○
○
Requisition sent to
○
○
○
Budget approving
○
authority
○
Yes
○
○
○
○
○
○
○
○
○
○
○
○
○
Exception
○
○
○
Approved
○
○
○
Delete requisition
○
No
○
OR
○
○
○
○
○
○
○
○
○
Change requisition Yes

○
Can it be
○
and resubmit corrected ?

○
○
○
○
○
No
○
Delete requisition
○
○
○
○
○
Figure 1 : Indent Approval and Processing

INDENTING
l IT system should verify departmental budgets prior to release of inventory requisition orders/ pur-
chase requests for inventory items. When it exceeds departmental budget, the purchase request
(PR) should go to the next defined hierarchy for exercising judgment and or management approval
for enhancing budget. The system should provide for terminating requisition when it is not approved
by the sanctioning authorities.
l When making an indent for an item, if there is sufficient stock available in stores, the system will
automatically prompt with a message indicating the same. The user can then raise an Issue Requisi-
tion instead. Material consumption should be linked with the departmental budget so that the material
can be issued up to the budgeted value only. In cases where budget is exceeded, approval should be
taken from a level higher than the delegated authority for normal circumstances.
l The indent creation input screen will prompt the user to enter the department code and equipment
code for which the indent is to be made. In the event the user is not authorized to create indents for
the department, access should be denied by the IT system.
l Indent should be classified as Urgent (Emergency)/ Normal. It should be treated as urgent when the
material is required before the normal lead time of procurement. IT system should not allow a user to
generate a normal indent if material required by date is less than the normal lead time. In the indent
the system would flag a remark flashing the indent to be urgent as shown in figure 2 (Criticality and
Note A*)
l As soon as an indent is raised by the user department, a work flow email alert should automatically
go to the approving authorities.
l As per the current procedure, the indent generated by the user department after approval by the
authorised person(s) as per the unit’s delegation manual for procurements should go to the stores
department for validation and checking for available alternate items/ substitutes before further
processing. Urgent Indents should automatically get flashed by e-mail on the Node of the hierarchy
one level higher than Normal BUYER.
l When desired level of automatics is achieved through the IT system of the unit, the IT system should
send indents directly to the Purchase department (IT systems should check for all validations and
alternatives without manual intervention).
l As a longer term objective, unit should aim at, integration of units IT system with that of vendors IT
system. The integration can take place with vendors with whom units have annual rate contracts.
Indents for rate contract items should go directly to the defined vendors. Target date for achieving
the same is December 2006.

INDENTING
Unit’s indent format should contain the following information as shown in the suggested indent format:
PROFORMA INDENT
Department : Indent No. : Cur Yr Con : Criticality :
Purpose/Type : Indent date : Prev 1 yr con : Last Supplier:
B* Approval Date : Reserve Qty : Prev 2 yr con : Last PO No.: Last Rate :
Sl.no. Item code Description Budget code Class U/M L/T Rate Stock Qty. Reqd Qty. Delivery Schedule
Date Month Year
A* Note :- Since the item required is before

the estimated date please give your Comment :-
Required Date: Utilisation Date: Capital/Revenue: Block: Total Value Rs.

Remarks:
Index:
U/M stands for Unit of Measurement; L/T = Lead time.
Incase of urgent indent the above note box marked A* will appear; B* Approval date will be updated with System date.
Figure 2 : Pro-forma Indent
l The Indent format should capture the past relevant information from the IT system itself.
l User department should raise single indent/requisition slip for all the items required by them during
a particular day. However, items of different category should not be put together in one indent e.g.
spares and consumables.
l Small value items, regular in nature should be indented and clubbed together by advance planning by
the user department. Indent for the same should be compiled twice a week and sent to the stores/
purchase department for procurement on a weekly basis to save on time and effort.
l Target lead time gap from the point indent is raised to its approval should be set on the basis of type
of Indent raised. In the user department, indent for critical and non-critical items should be approved
within 3 working days and that for Insurance items be processed within 7 working days.

INDENTING
l Stores department should process the indent within half working day.
l Actual time taken for approval and processing should be monitored for effective performance.
l For all items being indented, the Indent creation screen should show current stock quantity, pending
indent quantity and pending PO quantity for delivery at site. Wherever pending “Indent” and “PO”
Quantity is shown separately, logic will be as under:
q Pending Indent = Indent for which PO is not issued
q Pending PO = Overdue PO against which GRN is not made. Sum of these two
figures will represent the total pending indent for which GRN is not
yet made.
l New Indent Query screen will show Indent details and status for a range of indents or for a particular
department – for a data range or for indent number range (either the department number series or the
stores number series).
1.1 Indent cancellation
l Cancellation of Indents should be authorised by the concerned person as per the unit’s delegation manual.
l Department wise indent cancellation report should be generated on a quarterly basis by the stores
department. In the long run, when the indent will be directly send to the purchase section, the same will be
then generated by the purchase department.

STORES
2. STORES
2.1 Inventory Classification
Inventory Classification should be based on
q Consumption pattern in terms of Quantity and Value
q Lead Time whether High or Low
q Criticality of application whether Critical or Not.
Inventory is to be segregated into three heads – Insurance items, Auto Indented (i.e. Regular items)
and User Specified inventory (i.e. Departmental Indented items).
Block inventory should not come under normal inventory classification.
Auto Indented and User Specified inventory can be further categorised into three heads as –
Consumables (including stores items), Spares and Packing Material.
Based on criticality auto indented and user specified inventory should further be sub classified into
two heads as Critical and Non Critical Items.
The above classification should be done out side the Item Code Structure. This will serve CONTROL
and MIS purpose and to certain extent accounting requirement also. It should be defined as
“INVENTORY TYPE” using THREE CHARACTERS. (Eg. CRY and NCY)
2.1.1 Insurance Inventory:
Insurance/ Essential inventory are those spares of vital equipment/ machineries which
are normally not required for routine maintenance, but may be required for unforeseen
breakdown causing stoppage of production, or causes unsafe working conditions, or significant
energy losses, directly or indirectly. Normally these items have high degree of reliability,
having the same life cycle as equipment itself and are of high value and long lead time.1 .
All the critical non moving spares (which has not moved for last 3 years) should be
reviewed once in a year to be qualified and declared as insurance spares after
being approved by Unit Head to avoid working capital blockage.
1
Each unit should define lead time and value for operating guidelines. Usually the long lead time is atleast 8/ 10 months.

STORES
2.1.2 Auto Indented Items:
These have been explained in depth in section 2.8
2.1.3 User Specified/ Departmental Indentable items:
These should include those stores and spares, which have been purchased, based on specific requisition
from the user departments and are specific and unique to the equipment and process. In this category
there are two sub heads:
l Consumable Stores and Spares: The Consumable Stores and Spares would be items that are to
be replaced after a fixed life and the respective consuming departments are placing indents for future
consumption.
l Specified spares: Specified spares are those spares, where the need for consuming that particular
spare is immediate. The ideal stocks for this will be zero.
2.1.4 Critical Inventory:
Critical inventories are those spares of vital equipment, having reliability lower than insurance spares,
non availability of which could cause stoppage of plant or reduce production level or cause unsafe working
conditions or significant energy losses. A spare of equipment having standby will also come in this category
as standby is supposed to come into operation instantaneously in the event of stoppage of the main
equipment.
2.1.5 Non Critical Inventory:
Non Critical inventory are all other spares required for normal maintenance, but do not fall into critical
category as above. i.e. Non availability of which would not cause stoppage of plant or reduction in
production level, or unsafe working conditions or significant energy losses. It has low consequential
losses and has short procurement lead time.
Indenting Category Criticality Indenting Category Criticality
Consumable Critical
Consumable Critical
Non Critical stores and
Auto User spares Non Critical
Spares Critical
Indented Indented
Non Critical Specified Critical
Packing Critical Spares
Non Critical
Material Non Critical
Figure 3 : Inventory classification

STORES
2.2 Regular /Fast Moving User Indented Inventory
These items have consumption predictability. These include regular consumption stock items (those
which are issued more than nine times in last three years.
2.3 Slow Moving User Indented Inventory
The inventory items which has moved at least once and upto 9 times in last 3 years.
2.4 Non Moving User Indented Inventory
The inventory items which have not moved even once in last three years.
2.5 Fast / Slow / Non Moving Auto Indented Inventory
The definition shall remain same as those applied to User Indented Inventory except for the period
of observation which shall be reduced to one year in place of three years.
2.6 Surplus Inventory
Items which do not have immediate use, but they have a usage value in future. These items are in
excess of the unit’s storage norms and are not likely to be used within a reasonable period. Reasonable
period will depend on the inventory carrying cost, realizable value, shelf life etc. and is to be decided
by the individual unit.
2.7 Obsolete Inventory
Materials and equipments, which are not damaged and have economic value but are no longer
required by the company due to technological changes/ replacement of equipment/ machine/ other
reasons.
2.8 Auto Indenting
l This activity decides when inventory replenishment is required and calculates inventory
replenishment quantities. The unit should fix minimum, maximum and re order levels for
all stores items of regular consumption. While fixing the minimum, maximum and re order
levels the following should be taken into consideration :
q Lead Time history
m Minimum Lead time

STORES
m Maximum Lead time
[Lead-time – Time required between when an indent is raised and when the material
arrives.]
q Demand
m Average consumption
m Maximum consumption
m Minimum consumption
q Economic Order quantity
q Internal process cost
q Unit item cost
q Current stock levels as adjusted by anticipated demands.
l For those items which are new and do not have a consumption pattern, the re-order quantity
should be fixed on anticipated consumption level provided by the user department/s.
The following figure shows the flow of inventory replenishment process:
Stores Purchase Vendor
System should automatically generate

indent having stock < = ROL
Create requisition in purchasing

module
Convert requisition
Approved by HOD / authority as per
to PO in purchasing
delegation manual
module
Send PO by Receive PO
Mail / Fax / Post
Receive material Generate Invoice

and send material
Figure 4 : Overview of inventory replenishment process

STORES
To support this activity, an inventory system must:
l Record customer demand and replenishment lead time data for a period of 2 years for spares
and 1 year for consumables, analyze it for anomalies, and compute demand and lead time
forecasts on a regular, frequent schedule. System based Statistical Software Tool need to be
deployed for this. Inventory managers should review these annually, through computer-
generated forecasts. These should be changed only when information is available to the manager
that is not available to the automated system.
l Compute and routinely update the ordering costs, which may vary depending on method of
procurement and other factors. The ordering costs are costs involved every time an order is
placed for EOQ units of the product. These include all costs involved in placing an order
such as:
q telephone, faxes, stamps;
q preparing the purchase request;
q selecting the supplier;
q operational cost
q other costs per order may include expediting costs per order or setup costs per batch.
Ordering cost for a Financial Year (FY) can be computed as below :
Order cost per order = (Last FY Actual Expenses on Purchase department on all heads)
No. of orders released during last FY.
Annual Ordering cost can be estimated as = Orders per year x Order cost or setup
cost
Estimate and routinely update the per unit inventory holding cost, which is an estimate of the
cost to hold each additional unit of inventory. If iC is taken to be the inventory carrying cost
for each item then ‘C’ is the purchase (or variable) cost of each item and ‘i’ is the inventory
carrying charge as a percentage. Its primary elements are warehouse cost, interest on
inventory investment (finance cost), insurance on inventory, obsolescence and inventory
shrinkage (due to deterioration/waste, theft, damage)
It is estimated as: Annual Carrying cost = Average Inventory x Carrying cost for one unit in
inventory for one year.

STORES
l Total Annual material cost = Carrying cost + Order cost + acquisition cost of items
l Economic Order Quantity (EOQ) is that quantity which minimizes Total Stocking Costs.
l EOQ should be recomputed on a half yearly schedule, using the demand forecast, ordering
cost, inventory holding cost, and unit cost of the material.
EOQ can be estimated as = [{2 x (Annual consumption x cost of order) / Annual

carrying cost per unit} ½]
The concept of EOQ is explained as below:
Suppose there is a constant demand for an expensive product (C) that is part of an assembly.
Given an annual demand D for this product, calculus can be used to find the optimal amounts
of inventory, Q, to order every time an order is placed. We can see the cost tradeoffs in the
following explanation :
The inventory carrying cost for each item is iC, where C is the purchase (or variable) cost of
each item and i is the inventory carrying charge as a percentage.
Let S be the ordering or setup cost per order. If Q items are ordered every time an order is
placed, D/Q is the number of orders per year and SD/Q is the total annual ordering cost. With
Q/2 = average inventory, for any order quantity Q, the total annual cost is:
TC(Q) = SD/Q + iCQ/2+CD.
Graphically, we can see this relationship in Figure 5 on page 69.
If the total annual cost includes the sum of the annual ordering cost and annual inventory
carrying cost, we can see the following tradeoff. If Q is large, the annual inventory carrying
cost is high, but the annual ordering cost is low. Conversely, if Q is small, the annual inventory
carrying cost is low, but the annual ordering cost is high. Calculus can be used to determine
the optimal Q, the amount to order (every time an order is placed) to minimize the sum of the
total, relevant, annual costs. By differentiating TC(Q) with respect to Q, setting the equation
equal to zero, and solving for Q, we get the EOQ, which is (2DS/iC)1/2
Examining this relationship more closely, we can see some problems one might run into when
trying to operate just in time (JIT). JIT aims to reduce inventory and inventory costs by ordering
exactly the right amount when it is required, usually by ordering small amounts. Thus ordering
a small amount each time does decrease inventory carrying costs. But then orders are placed
more often, so total ordering costs increase. JIT only makes economic sense when the cost
per order is small.
STORES
Q D
T C (Q ) = iC + S + CD
2 Q
Holding Cost
Ordering Cost
EOQ Order Quantity (Q)
Figure 5 : Total Cost as a Function of Order Quantity.
This very basic, simple, inventory model can be generalized in many ways. Including quantity
discounts for items or transportation costs can increase the complexity of the equation describing
the total annual cost of dealing with inventory. Another cost component (annual purchase
cost) now depends on Q.
Thus in this way, the total annual cost of inventories is kept at the lowest possible level.
Other components are calculated as below:
l Minimum level = ROL - Average consumption x Average lead time
l Maximum level = [Re-order level + EOQ (Re-order quantity) - (Minimum

consumption x minimum lead time)]
l Re- order level = [Maximum consumption x Maximum lead time]
Recompute the reorder level on a quarterly basis, considering stock available for issue,
backorders, quantities on hold, and quantities due in.
l Recompute the safety stock, if any, on an annual basis. The safety stock may include
variables manipulated by management to establish intended service levels.
l Stock out cases should be monitored on a regular basis. Monthly reports should be generated
for the same.
In lieu of the EOQ, any other optimum order quantity calculation may be used,
provided it minimizes total cost, including the sum of ordering and inventory holding
costs.

STORES
Alternate to EOQ system, one of our group units is following Fixed Quantity system
for auto indenting items. The formulae developed by them for the same are as follows:
Minimum stock = (Lead time consumption * X)
Ideal stock = (Lead time consumption * Y)
Maximum stock = (Lead time consumption * Z)
[Pre-execution condition: X < Y < Z For e.g. X can be taken as 1, Y can be taken as 2 and
Z can be taken as 3 ]
Re order level = Ideal stock
Re order quantity = Minimum of ‘M’ or ‘N’
Where ‘M’ = (Minimum stock * 2.5) and
‘N’ = (Ideal stock + (Maximum stock * 0.5) – X)
‘X’ = Current stock + Total Pending Order + Total Pending Indent –

Provisional Issue)
This will help to maintain stock between the minimum and the maximum level.
However, in the Fixed Quantity method it is suggested that Inventory carrying cost
and Inventory ordering cost should also be factored in to calculate the optimum
Reorder quantity.
Units could run and evaluate the above models to follow the best system to optimise
on their inventory levels.
While following the EOQ/Fixed quantity model, the following checks should be built into the
system for validation :
l No indent to be allowed to be made beyond the Re order quantity. In case of exceptions the
indent should be sent to one level higher than existing delegated authority.
l Actual stock level should be checked with maximum level on monthly basis and reason for any
variation should be highlighted and reviewed.

STORES
As soon as the stock falls below the re order level using EOQ or fixed quantity method, auto
indents should be generated by the stores IT system and automatically pass on to the purchase
department to be converted into Purchase Orders. Otherwise the stores department should
revise the norms for the re order level.
Adjustment for Standard Pack Size and / or Economic Batch size manufacturing by the vendor
will be necessary in some cases. The materials management software should provide this
support while giving the out put through EOQ / Fixed Quantity Model.
The following flow chart shows the process of generating auto indent items:
Auto generated reorder alert by the

Item falls below re order level Issue of Purchase Order
stores management system sent to
purchase department
Stores Management System tracks

the time lag between ROL alert and
placement of PO
Figure 6 : System of Auto indent generation when inventory falls below the re order level
l To double check the levels at which indent should be generated for auto indent items, the
levels should be reviewed on a fortnightly basis for replenishment of inventory.
l Auto indent items should be reviewed on a yearly basis for additions and deletions to be
made in the existing list.
l As an ideal practice, units should enter into annual rate contract for all the auto indented
items.
l Cases where required quantity exceeds the warranted limit, the same should be first approved
by the authorised person as per the delegation manual with reasons stated thereof.
l Time lag between ROL alert and placement of PO should be monitored by stores. Target lead
time should be set based on past experiences for each group of item and the actual should be
measured against those targets. A simulation exercise in association with IT should be undertaken
to strike the optimum frequency of Auto Indenting.
2.9 Inventory Control
Music 3D system should be used for inventory control. Music 3D stands for Multi Unit Selective
Inventory Control System. It is a three dimensional concept which integrates Consumption value,
Criticality and Lead time giving eight different parameters which are easily controllable.

STORES
The following table shows the Music 3D system matrix:
High Consumption Value Low Consumption Value

Long lead time Short lead time Long lead time Short lead time
Critical 1 2 3 4
Non-critical 5 6 7 8
Figure 7 : Spares Classification under Music 3D
Sl. No. Category Stragetics
01. Critical - High consumption value 1. Strict control on consumption norms.

- Long lead time 2. Use full material intelligence system,
(expediting & followup efforts maximum)
3. Multiple Sources
4. Minimum working capital
(stock as low as possible)
5. No stockouts
02. Critical - High consumption value Same as above
- Short lead time
03. Critical - Low consumption value 1. Large quantity to be ordered -orders for
- Long lead time annual or two years requirement.
2. Adequate level of inventory (qty-plenty)
3. No stockout (100% service level).
04. Critical - Low consumption value Same as 3 above, however order quantity may
- Short lead time be for quarter to six months requirement, being
Lead time.
05. Non-Critical - High consumption value 1. All cost reduction technique to be applied.
- Long lead time 2. Stockout possible.
3. Delegation of Power-Highest level
4. Low Inventory Level
5. Service level - moderate.
06. Non-Critical - High consumption value Same as 5 above, except
- Short lead time 1. Purchases on just-in-time basis
2. ‘O’ inventory or very low inventory
3. Service level-Minimum.
07. Non-Critical - Low consumption value 1. Modarate inventory level
- Long lead time 2. Stockout possible
3. Routine efforts
4. Service level - moderate
08. Non-Critical - Low consumption value Same as 7 above.
- Short lead time
Figure 8 : Spares Management Strategy for Each item

STORES
Music 3D cannot be applied to Insurance spares. Inventory of Insurance spares depends on

the risk taking ability of the unit management.
The above Music 3D dimensions should be used for defining 8 varieties of Inventories as expressed
above. However, Words like HIGH / LOW, LONG / SHORT, CRITICAL / NON CRITICAL may
have different cut off points for different Units. Process efficiencies and efficacies of control
measures could then be easily evaluated.
2.9.1 Ideal stock of Music 3D:
Ideal stock level should be determined on the basis of criticality, availability and cost (MU-
SIC-3D) as follows;
Ideal Stock = 1 + K x (Lead Time Consumption)
l Consumption value
The high/ low consumption value shall be determined by the computer based on 80/20
concept. Top 20% of items, accounting for about 80% of consumption value shall be
deemed as high value and balance 80% of the items accounting for about 20% of the
consumption value shall be deemed as low consumption value items.
Although 80 % and 20 % are suggested norms, these percentages are not sacrosanct
and in actual practice it may range from 75 to 85% and 25 to 15%. If a Unit finds it
comfortable to monitor more number of items more closely they may use:
a) 70% Items – C Class Items Least control (Less frequency of review)
b) 20% Items – B Class Items Medium Control (Medium frequency of review)
c) 10% Items – A Class Items High Control (High frequency of review)
l Availability (Lead Time)
Items, having lead time greater than three months for imported items and one month
for domestic items, would be classified as high lead time items and those having lead
time less than the high lead time periods shall be classified as short lead time items.

STORES
l Criticality
Criticality should be identified by the user departments (primarily Maintenance

Department) by keeping in view the definition of ‘critical’ and ‘non-critical’ as defined
earlier in section 2.1.4 and 2.1.5.
l Lead Time Consumption
Actual Lead time and Lead time consumption quantity for each item should be captured
by the Purchase Department from the system and the standard lead time should be set
accordingly.
l ‘K’ Factor
K is the safety factor which shall be assigned to each of the eight combinations formed
by taking Consumption value, Criticality & Lead Time.
‘K’ factor proposed to be used initially, as suggested in the table (MUSIC-3D), shall be determined as follows:
SUGGESTED VALUES OF SAFETY FACTOR ‘K’
TYPE OF VALUE OF LOGIC

ITEM ‘K’
1. 2 HCV, HLT, Critical item – To have adequate stock
2. 1.5 HCV, LLT, Critical item - Stock level lower than type 1
3. 3 LCV, HLT, Critical item – Ensure max inventory & no stock out
4 2.5 LCV, LLT, Critical item- Stock level lower than type 3
5. 1 HCV, HLT, Non Critical item- JIT
6. 6 HCV, LLT, Non Critical item - Stock level lower than type 5.
7.& 8. 2 LCV & Non Critical item - Stock level lower than type 4.
l All the high value items should be verified for stock levels on a monthly basis.
l Consumption reports should be generated on a monthly basis.

STORES
2.10 Inventory Valuation
Inventory should be valued at lower of cost or net realisable value as per Accounting Standard 2.
The cost of inventory should be assigned on the basis of historical cost using moving weighted
average cost assumption. Historical cost includes all appropriate purchase, transportation, and
production costs incurred to bring the items to their current condition and location. Any abnormal
costs, such as excessive handling or rework costs are charged to operations of the period. Moving
weighted average is a moving average that assigns different weights to values or periods within the
total population.
2.11 Accounting and Monitoring of Zero value items
Zero value items are items which have been returned by the user department to stores. These items
are reusable. The value was booked against first consumption. Hence returned goods to stores do
not carry any value. However, only the quantity should be included in the stores ledger.
These items should be separately stored. The charge of the same should be considered only for
Parta/ Budgeting/ MIS purpose.
The Value for allowing it to be recorded in the IT system should be considered as Rs. 1.
2.12 Accounting for Stored Items
Accounting for stored items maintains financial data on inventory items in storage. To support this
activity, an inventory system must:
l Record losses from the recognition of destroyed, lost, or pilfered items.
l Generate financial transactions to record the transfer of inventory between financial categories
such as from normal stock inventory to surplus, obsolete, and unserviceable inventory. Stores
should send this information to the accounts department.
l Slow moving inventory should be valued at full value at which it is being carried forward till
it becomes surplus or non moving inventory.
l Non moving inventory is to be written off by 25% and an annual review should be done to
check whether it needs to be transferred to surplus or obsolete category.
l Surplus inventory should be valued at 50% of its cost in the year of declaring surplus.

STORES
l Value obsolete and unserviceable inventory at expected net realizable value. 95% value
of such items should be written off in the year of being declared as obsolete and cenvat
should be accordingly reversed.
l The difference between the carrying amount of the inventory before identification as obsolete,
or unserviceable and its expected net realizable value shall be recognized as a loss (or gain)
and either separately reported or disclosed. Any subsequent adjustments to its net realizable
value or any loss (or gain) upon disposal shall also be recognized as a loss (or gain).
l Obsolete inventory should be reviewed on an annual basis.
2.13 Delivery/Receipt of Materials
l Stores should arrange to unload material at designated area according to nature and size of the
material as goods received but not inspected/tested/approved.
l Stores should prepare Identification Tag and provide the same for the consignments received
on the same day.
l After delivering the material, the vendor should submit the invoice to the Bill Passing section
(Either in the accounts department or to the accounts person who might be operating from the
stores department).
l When goods are received in the stores, it should be passed through inspection within 2 full
working days. For specific chemical or technical testing which demands higher time,
the inspection should be completed within 5 working days.
l Once approved by the inspection authority, the on order quantity should be reduced and the
active on hand inventory quantity should be increased by entering the quantity in the system.
Receipt register should be updated. The material is then shifted to the respective area.
l The system should also record the used materials returned by user department along with
Material Return Slip.
l The information should be recorded in sufficient detail to allow matching of receipt, PO/contract
and invoice for payment purposes.
l Date of receipt should be recorded for prompt payment purpose and to monitor the timeliness
of placing items into inventory and the age of inventory items.
l System should provide facility for recording more than one delivery date in case of stag-
gered delivery.
STORES
The following figure shows the material receiving process by the stores department :
User department Stores Purchase Vendor
Receive material Send invoice and

material
Physical verifica-
tion against invoice
details and PO
No
Yes HOD stores should initiate
Damage
to lodge insurance claim and
No Generate MRA
Decision by
HOD User
to accept or Excess / Generate
not ? Shortage MDA
Yes
No
Prepare and send
Generate MRA to vendors Receive MDA
provisional and inform / MRA
GRN purchases
Yes
is receipt linked Shift rejected
to PO ? material to
Yes rejected area Receive
intimation &
follow up
System checks for
with vendors
delivery date,
Check for Excise, for replace-
location, and
Payment and ment if reqd.
quantity and send Life the
inspection advice No freight terms.
material
No Decision by
Approved by Prepare gate
approving pass for
inspection authority to
authority ? rejected mt. replacement
accept or replace
not & update asked for ?
register the
Yes material
Yes
Prov. GRN Monitor lifting No Yes

Shift material
converted to of the rejected
to storage area
final GRN material
Update goods
inward register
End End
Figure 9 : Overview of Material receiving process

STORES
2.14 Verification/Inspection of the Goods and Raising of GRNs (Goods receipt Note)
l There should be a computer terminal placed of the factory gate for one point initial data
capturing of the incoming material.
l Provisional GRN should be generated through the IT system at the factory gate immediately.
After approval in the stores department by the inspection personnel, the same number should
be updated by the stores department.
l Physical verification of receipt of the material should be done immediately on receipt of

material by stores department to verify that the items received match quantity ordered and
condition at the time of receipt.
l Material reported to have received without PO reference or wrong PO should not be opened
unless correct reference is received and such material should be considered as received after
receiving the correct reference.
l If material is received in damaged condition, insurance claim should be lodged on the same
day and the material should be checked by user department to access the extent of damages.
Transporter/ supplier should be intimated immediately.
l Shortages/Damages report /memos should be recorded and generated through the IT system.
Units format should contain the following information as shown in the suggested format for Inspection Advice
sent to the concerned user department:
Inspection Advice
Department :
Prov. GRN GRN Item Item Indent PO Quantity UOM Supplier Remarks
No. Date Code Description
No. Date No. Date Indented Received Name Code
The above material have been received in Stores. Please check and give your approval within 2 days otherwise we will
treat the goods as approved.
Prepared by Material Inspected by Material shifted in custody by Approved by
Date. Date. Date. Date.
Figure 10 : Inspection Advice

STORES
l Once the material is received, auto work flow alert should go to the user department for
material inspection. Inspection of the items is done to verify that the material match in type,
condition, quality and other critical factors. Inspection for each variety of commodities should
be done based on Standard Operating Procedure for checking the critical parameters.
l To take the advantage of discounts, criticality of payment should be printed on GRN.
l After receiving the material receipt intimation, user should come to stores and inspect the
material and approve the GRN. The GRN approval should get updated in the system.
l Material should be inspected within 2 days of its receipt by the stores department.
l Large value items should be inspected either by in house inspection agencies or through third
party inspection agencies. For quality related checks or inspection/testing, out sourcing should
be resorted to only if facilities for checking/tesing are not available in house.
l Small value items to be checked on random sampling basis. (Individual units to define the
limits for large and small value items.)
l Once approved by the inspection personnel, the provisional GRN should be automatically
converted into final Goods Receipt Note within 12 working hours.
Unit’s format should contain the following information as shown in the suggested specimen GRN:
Goods Receipt Note
Vendor code : P.O.

Name: Challan no.:
Address: Dept. no.:
Sl.No. Item code Description Unit Quantity Value location

Ordered Received Accepted Rejected Damaged rate discount landed cost
Remarks by Inspection authority: Cenvat applicable Cenvat doc. Received

Payment terms Payment date Freight
Stores authorisation Purchase voucher detail
Section Incoming Inspection Custody Manager Provisional Final
Date
Signature
Figure 11 : GRN Format

STORES
l Update inventory on hand information on the same day and auto work flow alert for
information of material received and accepted should go to the purchase and accounts
department to support the payment management function.
l Bills should not be passed if the GRN is not approved. A screen should be provided with
limited fields to facilitate approval of GRNs.
l Another facility that should be there in the IT system is to flag SPVs (Stores Payment Voucher)
after processing to indicate a “hold payment” condition by the Material Management head. He
would have the authorisation password. This would ensure that reports are printed when
payments are due, such Accounts payables will be printed with an asterisk (*) symbol to
indicate status of held payment. Any SPV could be flagged this way even after processing or
after a period of time. Such a facility should be provided in the IT system as a generic facility
for all Accounts payable vouchers for any extreme business reasons. The circumstances in
which such power would be exercised should be decided by individual units.
2.15 Rejection/Discrepancies
l Auto work flow alert should go to purchase department, units own excise department and
supplier when MRA (Material Rejection Advice) / MDA (Material Discrepancy Advice) is
prepared by the stores department.
l The same should be prepared on the day when inspection is completed.
l Rejected items should be tagged “Rejected” and should be separately stored in an area
specifically classified as “Rejected Materials”. However, heavy materials/equipments need
not be shifted from the place in which they are stored but should be clearly marked in bold
letters with rejection tag.
l Stores department should communicate the rejection/discrepancy to the vendor through email/
Phone/ fax within 2 days of preparation of MDA/MRA. The purchase department should
follow up with vendors if required.

STORES
Units format should contain the following information as shown in the suggested format for
Rejection Memo:
Material Rejection Note

From: (Stores) To: HOD (Purchase)
City Office Factory:
Address: Address:
During inspection/testing, inventory/stock checking, following items are identified and certified as “Rejected”
and cannot be used as per details given below:
No.: GRN No. : Dated :
M/S. Our order No. : Dated :
Name of Transporter : Dated :
Invoice No. : Dated :
Insurance Claim : Dated :

Sl. No. Item Code Description Supplier U/M Quantity Value
Received Invoiced Accepted Rejected Shortage Excess rejected
Reason of Rejection
1)
2)
Note : 1) Please arrange to lift rejected/ excess goods within 7 days.
2) The material will be at our end at your risk & cost, we shall not be responsible for its safe storage.
3) Please let us know the mode of despatch of rejected goods to you.
4) Material will be despatched back at your cost and risk if your response is not received within 7 days.
Please treat this as urgent and quote the reference No. & Date of this advice & our purchase order No. in each
correspondence on this subject.
For
(Unit Name)
Prepared by: Gate Pass No. Authorised by:
Figure 12 : Rejection Memo

STORES
l Stores department should monitor lifting of the rejected material by the vendors.
l The user department should be informed of the status of the material replacement.
l Gate pass for such items should be generated by the IT system in the stores department to
indicate the material movement.
Units format should contain the following information as shown in the suggested format for Gate Pass:
Cost Centre Code / Issuing Dept. GP Category :
Requisition by : Gate Pass No. :
Req. Person : Returnable
Authorisation No. Non Returnable
Department : Date :
Excise Challan / Invoice No:
Truck / Vehicle No. :

Purpose :
Sent Through :
Our GST No. : CST No. : ECC No. Range :
Consigne Details CST :
M/s. GST :
Contact person : Tel :
Sl. No. Item Code Item Description Quantity Returned Quantity Received Amount
Qty. Unit Qty. Unit
Number of packages : Total Value (Rs.)

Gross weight
Initiator Recommender
Outward No.
Signature of Truck Driver
Approver Signature of Receiver Signature of Security I/C
Figure 13 : Gate Pass format

STORES
The following figure shows a standard letter which is issued to vendors in case of rejections :
STANDARD FORMAT FOR COMMUNICATION TO VENDORS IN CASE OF REJECTIONS
To : Supplier, Date ____________
M/s __________
The above materials have been rejected as per the reason stated. Please arrange to collect these mate-
rials immediately or we shall despatch to your at cost after 15 days after the date of this note. Mean-
while, materials are lying with us at your risk and responsibility. In this connection, kindly take the
following action(s) :
n Please replace the damaged / rejected goods urgently as per our Order No._________dated ________
and confirm by return fax.
n Please take our Order as cancelled and no replacement is required.
n We have deducted Rupees________from your Bill No. _________dated _________for the Value of
damaged / rejected goods.
n Please send us your amended Bill.
n Please bring copy of this note and collect the material from our Head Office in ……….
n Please bring copy of this note and collect the material from our Factory in ………
We have also attached the Corrective Action Request form for your Corrective Actions. Please com-
plete the Form and return to us within 15 days.
HOD (Stores) HOD (Purchase)
CC : Dept./Sect. Concerned
Figure 14 : Standard letter to vendors in case of rejections

STORES
l Corrective Action request form should be sent to the concerned supplier as per the sample
form given below :
The following figure shows a standard letter which is issued to vendors in case of rejections :
CORRECTIVE ACTION REQUEST FORM

1. Name of the supplier :
2. Address :
3. Material Supplied : P.O.No. : Date of Shipment :
Invoice No. : Qty .:
4. Defects :
5. Acccepted Under Protest /
6. Rejected with reasons
Date : Signature :
Designation :
Supplier’s Response : -
1. Immediate corrective action taken
2. Personal involved Complete date :
3. Root cause analysis
4. Permanent Corrective / Preventive action taken Target date :
5. Means to measure effectiveness of Corrective / Preventive action .
6. Frequency of verification of the Corrective / Preventive action .
7. Corrective / Preventive action completed . Date :
Date :
Signature :
Designation :
Figure 15 : Standard format for Corrective Action Request form
l Collect the corrective action request form duly filled by the supplier, so as to avoid recurrence
of such problems in the future within 15 days of receipt by supplier.
l Deductions for rejections should be made on landed cost basis (inclusive of non-refundable
taxes, duties, freight, insurance etc.)
l In case of Ex works basis, the extra cost incurred in sending the material to the supplier should
be deducted from supplier’s account and transportation for replacement.
l Monthly consolidated report should be generated specifying Item code, description, Vendor
Name and code, No. of times items rejected, Qty and Value.

STORES
2.16 Procedure for Re-inspection of Material
l In case Rejection Report is not accepted by the vendor and where the vendor submits his own
Test Report, there should be a system of re-inspection at the unit, if desired. If still the supplier
is not satisfied, the unit should get the material tested from outside agency and that should be
finally binding on both.
l Where there are minor variation(s) in the component or deficiency/variation in the material of
construction, which materially does not affect the plant working, there should be a procedure
of accepting such items with suitable deduction looking to the estimated life of such component/
part. The Inspection department should suggest such deduction in percentage in Test Report,
wherever applicable.
l For components which need minor repair, the same should be accepted with deduction for
repairing charges incurred by the unit with a view to avoid delay in ultimate receipt of the
material.
2.17 Material Storage in the stores
l Proper material storage process will help in establishing physical control over the items accepted
into inventory.
l Bins and Aisles system should be followed for storing materials in the stores.
l The IT system should identify and classify the intended storage location of the item.
l Material should be stored on floating system basis to utilize the available space. i.e in case a
particular bin is empty, the same can be used for storing other items and the item location
should be updated on the IT system to reflect the change.
l Small items should be stored in Bins.
l Heavy items in open warehouse duly covered and properly stacked condition.
l Chemicals and refractories and gas cylinders in godowns, plant chemicals should be directly
unloaded in plant (if possible),

STORES
l Store yard for steels, heavy pipes and other bulk spares.
l Oil and lubricants should be stored in RCC platform to meet ISO 9002 requirement including
the used ones.
l Packing material godown for packing bags etc.
l Inflammable material should not be kept together.
l Ensure safe storage and stacking of materials so as to present damage or deterioration and
keep door and corridor free to access.
l Spare part, oil, lubricants, chemicals and refractory should be kept away from the walls.
l Warehouse should be cleaned at least on a weekly basis.
l Item Tag with complete details like Item codes, description and date of procurement of the
material should be clearly displayed so that fast and easy retrieval is possible.
The following figure shows a suggested format of Receipt Tag :
RECEIPT TAG
ITEM DESCRIPTION : ..........................................................................................................................................................
QTY : ................................................................ UOM : ................................................. GRN NO. : ....................................
ITEM CODE NO : ..................................................................................................................................................................
USER DEPT. : .........................................................................................................................................................................
DATE OF RECEIPT : .............................................................................................................................................................
SUPPLIER NAME : ...............................................................................................................................................................
PO NO. : ................................................................. PO DATE : ................................ BIN NO. :..........................................
Figure 16 : Sample receipt tag to be attached with the material while storing

STORES
l The IT system should generate a report of items which have shelf life that will expire in a
month’s time listing the item code, quantity, condition, type.
The expected date of expiry as shown below:
List of Items having Shelf Life
Sl. No. Items Items Qty. UOM Location Recd. Mfg. Expiry Self Life Condition Type
Code Description Date Date Date Years
Figure 17 : Standard report on items having shelf life
l The IT system should also generate reports for stores items whose guarantees and warranties
will expire in a month’s time for effective monitoring and follow up.
l To retain total control on materials, no sub stores should be allowed in the plant. Stores should
be able to meet the customer requirement at odd hours in case of emergencies/ urgent
requirements.
l Proper house keeping should be followed at the time of storage and it should be ensured that
nothing is lying on base shop floor.
2.18 Issue of Material for consumption
The following figure shows the Material Issue procedure by stores:
Stores
Receive online alert for Generate Issue Issue of material on Booking of Issue pass for
requisition of material pass number authorised issue pass consumption on a daily basis
Month end processing
Consumption reports to the

department and reports to
MIS department
End
Figure 18 : Material Issue Process by stores

STORES
l The stores should book consumption in the IT system. Reduce quantities on hand by the
number of items issued.
l Consumption pending reports should be reviewed on a fortnightly basis. It should get

automatically updated on a daily basis by the IT system and auto reminders for the same
should be generated by the system in the user department. Monthly report should be generated
for the MIS purpose.
l Stores should monitor timely uplifting of the materials by the user department.
l Lead time report should be generated by the system highlighting the material required by date
and the material lifted from the stores. This will enable strict monitoring in cases of urgent
procurements.
l Stores department should send reminders to the user department after expiry of 15 days
from the required by consumption date. Moreover, items not consumed within one month of
the required by date by the user department, should be issued and charged to the issuing
department concerned. The same will reduce the consumption budget of the issuing department.
l Materials should be issued at specific intervals on all days. Raw materials should be issued as
on a continuous basis as per requirement. Stationery items should be issued once in a
month on specific days.
l Stores Issue Pass/Material Issue Voucher with the serial number should be generated through
the IT system by the stores department. It should contain information such as the item code,
rate, value, location in the stores, department code and quantity required and issued.

STORES
If it is for a specific job, then the job number should also be mentioned as shown in the following suggested figure:
Material Issue Voucher
Department : Prov No.: Date : MIV No.

Contractor : Charge Code: Last Supplier
Equipment No.: To be collected by: Rate :
Job no.: Date :
Sl. No. Activity Item Item Unit Qty. Qty. Value Location Stock Remarks
Code Description Required Issue
For Department: For Stores:
Figure 19 : Standard format of Stores Issue Pass
l The stores department at the time of issuing the material should feed in the actual issued
quantity into the IT system.
l Stores department should introduce door delivery to users.
2.18.1 Issue of material for Repair Job Work:
l Stores department receives “Repair – Memo” from concerned user department

for sending the material for Job-work.
l It should prepare “Returnable Gate Pass” for the materials to be sent for job
works.
l Stores department should receive the equipment from the concerned department.
l It should update “Repair register” for the materials being sent to particular suppliers
for Job-work.
l The unit should exercise caution on time limit for excisable items.
l After the receipt of the job-work material, send it directly to user department for
verification and use at their end.
l Update the “Repair Register” after arrival of the Job-work materials.

STORES
2.19 Basis of Material Issue for all Store Items
l Material should be issued on FIFO basis. The FIFO formula assumes that the items of inventory
which were purchased first are consumed first, and consequently the items remaining in inventory
at the end of the period are those most recently purchased.
l The identification tag must include the Item code and the date of procurement for easy
references.
2.20 Physical verification
Physical verification supports the internal control process of verifying records of inventory on hand
through comparison with physical counts and to ensure that items are in good condition and ready for
issue.
l Physical verification should be done at regular intervals by stores authorised personnel

depending on the risk of loss inherent in the type and value of inventory items.
l The total inventory should be divided into three classes. –Alpha, Beta and Gamma categories.
l Major Raw material and other high valued items should be included in the Alpha category and
should be physically verified on a monthly basis. Accounts personnel should also be present
at the time of carrying out physical verification.
l Other raw materials should be verified at least once in six months.
l All Beta and Gamma category items should be checked at least on a Yearly basis as per
statutory requirement. However for slow moving items, the frequency of checking should be
more.
l Certificate about serviceability of Insurance items should also be separately taken on a

yearly basis.
l Once in six month revalidation of shelf life items should be conducted.
l Sampling methodology may be used in the physical inventory program particularly for large
inventory.

STORES
l If the data maintained in the system does not match the actual inventory, the IT system must be
updated to reflect actual quantity by debiting or crediting the differential quantity of that item.
l The shortage to the extent of norms laid down by the management should be treated as normal
losses.
l Losses due to theft, fire, and natural calamities like flood, earthquake, etc. should be considered
as abnormal losses.
l The shortage in excess of the limits should be treated as abnormal losses.
l Significant discrepancies identified as a result of physical inventory should be investigated,

documented and resolved in accordance with statutory and department’s requirement. The
adjustments required to be made in the books should be approved by the approving authorities
as per the delegation manual.
A physical verification sheet should be prepared with parameters well defined and the actual quantities should be
recorded in the sheet as suggested below:
Physical Inventory Worksheet
By :
Date :
Item Code Item Desc. Stock Unit Line no Location Shortage Excess Remarks
Figure 20 : Physical Inventory work sheet
l The report should be sent to the concerned Unit Head/ Head Commercial
l The slow moving items identified during physical inventory check should be clearly highlighted
in the Inventory report.
l The surplus/obsolete items should be identified by user department on an annual basis. The
obsolete /surplus items should be disposed off by circulating the list to sister units/ selling in the
open market/ through e auction/ displayed on Aditya Disha.
l The stores department should request user department for verification of such materials and
get their concurrence on Inventory report for acceptance/rejection of slow moving / obsolete
items.

STORES
l Unused items lying at the plant should be monitored thrice a year. User department should
give a list of such items to the sores department. Such material should be treated as shop floor
stock.
l If any item is found damaged, deteriorated or expired, the same should be moved to the
designated place immediately.
Fill up the necessary form and submit to concerned authority for disposal:
MATERIAL DISPOSITION APPROVAL REQUEST

Form No.:
To : Date :
During perpetual inventory checking, following items are identified as “Obsolete / Rejected” and can not be used as per
details given below :
Item Code Item description Qty. Amount Reason for Disposition
Figure 21 : Materrial disposition approval request
2.21 Block Sanctions
l Inventory for project related (Block) items should be identified on the basis of cost centre
code for the project. However, the item codification structure for such items would be same
as the normal inventory items.
l All inventories for such project works should be issued against the sanctioned budgeted
procurement mentioning the block code.
l After the completion of the project the block code should be closed.
l Inventory for project work should be separately stored.
2.22 Measurement of Internal Performance Efficiency
l Stores department should monitor lead times to assess the internal performance of its
department and set SLA’s (Service level agreements) for its internal customers. These
should be a part of monthly MIS.

STORES
The following is the suggested format for measuring internal performance efficiency:
Sl. No. Performance Parameters UOM July –Sept. Target July-Sept.
2003-04 2004-05 2004-05
1. No.of indents receipt Nos./Month
2. Urgent indents %
3. Pending Indents Nos./Month
4. Total material received Nos./Month
5. Total material issued Nos./Month
6. No. of damages Nos./Month
7. No. of rejections Nos./Month
8. Inventory levels
(a) Raw materials Days
(b) Fuels Days
9. Packing materials Days
10. Inventory Carrying Cost
11. Raw Material Rs. in lac
12. Stores Rs. in lac
13. Inventory Turn Over Days
Figure 22 : Measuring internal performance efficiency
The stores department should monitor the following internal lead times:
l Time taken from Material Requisition Note raised by the user department to issuance of Stock
Transfer (Issue Pass) Note.
l Time taken from issuance of provisional GRN and Inspection completion date.
l Time taken from generation of Material Rejection Advice to lifting of the material by the vendors.
l Time taken from Inspection to stock claimed by the user department.
l The stores department should evaluate its performance efficiency on a quarterly basis.
l The targets for each performance measure can be set based on past year’s performance.

STORES
2.23 Scrap disposal
The following flow chart shows the scrap disposal process:
Stores department Scrap disposal committee Buyers
Scrap generated should be weighed by

users department at weigh bridge
Categorywise Scrap should be collected

and stored at scrap yard by stores
Send scrap intimation to scrap committee Scrap to be sold

or not ?
No Yes
Informs the stores dept.
Stores dept. invites quotations Yes

Receive and sends quotes
Open the bids
Evaluates bid, Select highest

Prepare comparatives Receive confirmation
bid buyer & issue Sale order
against security deposit
(EMD) to be converted
updates ledger make advance payment for

Weighment and sale of scrap and then lift material
Collects and send payments scrap by the committee
End
to accounts with a memo
Figure 23 : Scrap Disposal process
l A scrap disposal committee should be formed comprising of User department and Stores
Head or Commercial Head.
l User department should weigh and segregate the scrap.
l Stores department should declare fixed days to collect scrap from the user department.

STORES
The following figure shows a standard scrap disposal note:
SCRAP DISPOSAL NOTE
To : Stores Department
From : ....................... Department
Dated : ...........................
Sub. : Scrap for disposal
We are handing over the following Scrap.
1. ..............................................................................................................................................................................
2. ..............................................................................................................................................................................
3. ..............................................................................................................................................................................
These scrap is generated from the following jobs carried out in plant.
1. ..............................................................................................................................................................................
2. ..............................................................................................................................................................................
3. ..............................................................................................................................................................................
Would request you to dispose the same.

Thanking you,
Department Head
Note : The scrap is duly segregated and only the disposable scrap is handed over to Stores for disposal.
Figure 24 : Scrap Disposal note
l The scrap items should be segregated into different categories for physical storage in the scrap
yard. Bin card should specify the total weight including the tier weight.
l The stores department should inform the scrap disposal committee regarding the scrap sale.
The committee will decide whether the scrap needs to be sold or not.
l Spot selling by forward auction mechanism is the ideally recommended and the most transparent
method for scrap disposal. It should be done either through in house locally developed system
or through web based auction sites. For in house process, all the interested parties should be
invited at one location and terminal should be provided to them. They can bid online at the
same time and the deal can be finalised.

STORES
l For scrap generated on a perpetual basis, annual rates should be fixed for its disposal. All
the statutory compliances should be followed for the same.
l Sealed tenders should be invited by the stores department.
The following shows a suggested sample letter issued to all the parties from whom quotation for the scrap items is invited:
Sub: disposal of scrap material
Dear Sir,
We are pleased to issue an enquiry for disposal of various types of materials being generated on
regular basis at ................(unit’s name). Please find enclosed herewith the list of various scrap
material (Annexure-l). We are in the process of awarding a contract for scrap disposal as per terms
& conditions listed in Annexure-II
You may also bid for the items listed in Annexure-l subject to your having authorization from GPCB/
MPCB for Water (Prevention & Control of Pollution) and hazardous waste (Management & Han-
dling). Please attach the certificate along with the tender, otherwise your offer will not be considered.
You are requested to forward us your best offer in a sealed envelope clearly mentioning the agree-
ment to the terms and conditions mentioned in Annexure-II along with EMD as under:
(a) In case you quote for two or less than two items mentioned in Annexure-l, the EMD value would be
Rs.2.00 Lac only.
(units to specify their individual limits for the same)
(b) In case you quote for more than two items mentioned in Annexure-l, the EMD value would be
Rs.5.00 Lacs only.
(units to specify their individual limits for the same)
The rates submitted by you shall NOT be negotiated, which please note.
You are requested to submit the certificate of registration of your firm clearly indicating the names of
the owners / partners along with IT return for the firm for last two years along with your bid. (Units
name) reserves the right to reject the offer in the absence of above documents.
We would also prefer that you submit a certificate from the police station of your jurisdication along
with the offer as a confirmation that no financial or criminal cases are registered against your firm.
You are requested to submit the offer to Sr. Manager (Stores) latest by ........... (date) (before
6.00pm). No offer will be entertained after the above due date of submission.
Thanking You,
Yours faithfully,
For
General Manager (Materials)
Figure 25 : Standard letter for enquiry floatation for scrap material
Units should enclose of various scrap material to be sold as an Annexure.

STORES
Suggested term and conditions for the scrap sale to be attached as Annexure II :
TERMS & CONDITION
(1) Th size and quality indicated are approximate and will depend on actual availability at site.
(2) Unit Name reserves the right to reject any bid without assigning any reason.
(3) Unit Name serves the right to hold any material for sale without assigning any reason.
(4) For physical inspection of the material, you may contact stores Dept. within office hours. (Tel. No.
........ Ext. no. .....)
(5) Sealed bid should be submitted latest by ........ date (before 06.00 p.m.). Sealed quotation should be
given in two envelopes. One should contain the earnest money with terms & conditions and second
price offer.
(6) All quotation should be submitted along with an earnest money as per the clauses mentioned on page
no-01 by DD/cheque payable at ..... in favour of ..... Unit Name. Bids received without earnest
money shall stand rejected.
(7) Price quoted shall be inclusive of sale tax, excise duty and other taxes & levies.
(8) Material collection from our site, arrangement for vehicle and loading from our site shall be in buyer’s
scope.
(9) The successful bidder will deposit security deposit as per EMD clause mentioned on page no-01
before lifting the materials from our site. The earnest money may be adjusted towards this security
deposit.
(10) The successful bidder will have to start lifting the material within a maximum period of 6 days from the
date of sale order issued by unit name and then as a weekly basis.
(11) All the persons of the buyers shall follow rules & regulation prevailing at our site for safety and security.
The buyer shall be fully liable for the conduct of this employee and shall be fully responsible.
(12) Material will be sorted out separately by the buyer as per the instruction of the Stores Department.
(13) Successful bidders of other than Unit’s State have to submit “C” form before lifting the material.
(14) In case of any dispute, the decision of unit name will be final & binding.
Note : Please refer Unit of Measurement before quotation rates.
Figure 26 : Terms and conditions for scrap sale

STORES
A comparative format should be generated from the IT system as suggested below:
COMPARATIVE STATEMENT FOR SALE OF SCRAP ITEMS

TENDER NO.
YEAR
Sl. No. Type of Scrap Item Unit Previous rate Vendor Names Highest Variation from
(Rs.) 1 2 3 last rate
Figure 27 : Comparative statement of the quotations received
l All the buyers should have a police verification/ clearance certificate.
l The rates submitted by the buyers should not be further negotiated. If the units are not
comfortable with the rates, tender should be cancelled. It should be re tendered in such cases.
l Stores should monitor lifting of the material by the buyers.
l The payment for the same should be collected by the stores department and forwarded to the
accounts department with a memo.
l Quarterly reconciliation of the actual scrap received and sold should be prepared by the
stores department.
The following shows a standard scrap gate pass register:
SCRAP GATE PASS REGISTER
S.G.P Date Department Party’s Name & Scrap Qty. UOM Vehicle No. Signature Remarks
No. Address Particulars
Figure 28 : Standard format of gate pass register for scrap items
2.24 Review Meetings
Stores & Purchase review meetings with all the User departments should be organised on a monthly
basis on a pre defined dates.

STORES
3. ITEM CODIFICATION
Group units are following different items codification structure. Uniform codification and
integration in business like ours is a necessity.
A suggested logical basis of identification of items on the basis of letter and/or figures developed by one
of our group units is given below: They have 10 digit item codifications. Similar items having common
attributes/ specification have been divided into 2+2+3+3 digits.
r First Two Digit defines Primary Group (For eg. Grouping of same type of Items such as Group 05
defined as Valves)
r Third and Fourth Digit defines Secondary Groups – i.e. Sub Classification of Primary Group Item
(For eg., 05 primary group, digit 03 and 04 would belong to Gate Valves)
r Last 6 Digit defines Tertiary and Sequential Group i.e Further Classification of Primary Group Items,
(Such as in 05 Primary Group, last digit would belong to Class, Size, End Details, Operations Etc.)
However, each unit could follow the item coding systems as per their own methodology
provided logic adhered to is both easy to follow and simplifies identification.
The following figure shows the templates for item codification.
Enter Item Code Enter Item Code Description Enter Item Type
Select
Item Group Group Description
00 NON STOCKABLE ITEMS
01 ABRASIVES
02 PULLIES
03 BEARINGS & ACCESSORIES
04 BELTS & ACCESSORIES
05 VALVES, STEAM TRAPS & ACCESSORI
06 PIPES, TUBES & FITTINGS
07 COMPRESSION FITTINGS
Figure 29 : Template for Primary group

STORES
Enter Item Code Description

Item Group : 05 Click here to Seach Again
Item Sub Group Sub Group Description
00 BALL : REGULAR PORT : 1 PRICE
03 BALL : FULL PORT : 1 PRICE
06 BALL : JACKETED VALVE
07 GATE : GLAND : RISING STEM
08 GATE : GLAND : NON RISING STEM
09 GATE : GLANDLESS : RISING STEM
10 GATE : GLANDLESS : NON RISING STEM
11 KNIFE GATE : GLAND : RISING STEM
Figure 30 : Template for Secondary group
Item Groupsubgroup : 0503
Item Code Item Description New Item UOM Item types FDesc Flag LY Cons. Stock
0503010100 BALL V/V : CL-150 NOS R L 270 44
SS-304 3/4’’ SE H.L. BSP
0503010200 BALL V/V : CL-150 NOS R L 81 27
SS-304 3/8’’ SE H.L. BSP
0503010400 BALL V/V : CL-150 NOS R L 375 0
SS-304 1’’ SE H.W. BSP
0503010401 BALL V/V FULL PORT NOS 1 L 0 0
1 PIECE : CL-150 1”
FE BS10 T-D
0503010407 BALL V/V : SS 304 1/2” NEW ITEM NOS 1 S 0 0
SE H.W. BSP
Figure 31 : Template for Tertiary and Sequential group

STORES
l The user department has the authority to create a new code for a new item. The same is validated by the
stores department. An auto work flow alerts should go to stores department as soon as a new code is
generated by the user department.
Unit should maintain list of item codes in the IT system as shown in the suggested format below :
LIST OF MATERIAL CODES
Item Code GRP Description Sub GRP Description Sub Sub GRP Description UOM Location
Figure 32 : List of Item codes with descriptions
l An alternate suggested item coding system is to follow a globally accepted UNSPSC coding of United
Nations. (United Nations Standard Product and Service Codes.)

STORES
4. MIS
Listed below are internal management information requirements for the Stores activity. This information
should be available for Stores Heads and designated internal review officials on a periodic or on as
requested basis. This is not an all-inclusive list of internal information requirements for the stores function.
Each unit must determine the specific management information needs necessary to manage its
material management programs. Each unit must also determine whether the information should be provided
on hard copy reports, through system queries, or both.
The query screen in the IT system should provide at least the following types of management information:
4.1 Daily/Weekly reports
4.1.1 Consumption report:
l This daily online report provides item wise details of the day’s consumption with opening
and closing stocks. The consumption report should be generated department wise and
consumption should be monitored against consumption budgets.
4.1.2 Details of items received/ Daily arrival:
l This online report gives details of items received by stores on a given day including the
items returned by user department.
4.1.3 Days Supply:
l The number of days until the current on-hand quantity of an item or group of items is
likely to become zero, based on current demand forecasts. This report is seen online on
a daily basis especially for production related items. For eg. Raw Material and bags.
4.1.4 Consumption report for urgent/specific indents by users beyond set norms:
l This weekly report shows the consumption report of the items procured against urgent
indents.
4.2 Monthly Reports
4.2.1 Consumption report:
l This report provides item wise cumulative details of the month’s consumption with opening
and closing stocks.

STORES
4.2.2 Inactive / Slow moving stock:
l Information regarding items that have not been used over a user-defined period to allow
managers to identify slow-moving items.
4.2.3 Item Expiration/Shelf Life:
l Information regarding items that have expired or are due to expire including medicines
4.2.4 Repair Status:
l Identifies items transferred from an inventory for repair and either the return of the item
back into active inventory or its transfer for disposal because the item was determined
to be unserviceable.
4.2.5 Inventory Turnover:
l Information regarding the number of stock turns for a defined time interval for auto
indented/ min max./ stores indented items.
4.2.6 Stores Inventory ageing report:
l This report will give ageing analysis of all the stores inventory.
4.2.7 Response time/ Lead time:
l The time interval from the date a customer enters an order to the date the material is
received by the customer and recorded. This may be calculated based on average wait
time for all customer orders or on a statistically valid sample.
l The time interval from material received to material inspection.
4.2.8 Report on process efficiency of material management:
l This will give a consolidated report from raising of indents to passing of bill status at one
glance to monitor process efficiency at each level.
4.2.9 Losses:
l Quantities and amounts of losses resulting from destruction, shrinkage, and pilferage.

STORES
4.2.10 Scrap:
l Identifies items transferred from the inventory facility to a disposal activity for disposition.
Information provided should include item identification number, stock number, item
description, quantity, and value.
4.2.11 Surplus/Obsolete:
l This report will give a list of items declared as surplus/obsolete by the user department.
4.2.12 Internal Customer Satisfaction Survey:
l This monthly report will give customer satisfaction feedback on materials management
team. The parameters should be finalised by discussion with the Material Management
and it’s customers. An average score of 4 on a scale of 5 should be targeted for each
parameter. Responses from all the internal customers should be collated and action plan
should be drawn addressing the improvement areas.
4.3 Quarterly Reports
4.3.1 Internal performance efficiency measurement report:
l This report will indicate the internal performance efficiency of stores department and
should be reviewed by commercial head.
4.4 Bi Annual Reports
4.4.1 Physical verification of Inventory of high value items:
l Provides information regarding variances between actual counts and on-hand quantities
as a result of performing a physical inventory of high value items.
l The percentage accuracy of the quantities and values of inventory records versus quantities
physically on hand.
4.5 Annual
4.5.1 Master Inventory/ Inventory report:
l Information regarding all items in inventory, such as stock numbers, descriptions, quantity
on hand, unit cost, and location highlighting separately the High value and Critical items.
This report is taken out once in a year for annual books. This is also available online and
can be viewed at any time.

STORES
4.5.2 Cost Reduction and Containment:
l This report shows the total cost saved in a year (Budgeted vis a vis Actual ) For eg.
r Reduction in transaction and inventory management costs and distribution costs;
r Reduced stock holdings and improved payment terms;
r Cost reduction due to using an alternative good or service;
r Savings due to improved waste management;
4.6 MIS proforma formats
Suggested standard formats for few of the MIS reports are shown below:
1) The following table shows a consolidated report on details of stores and spares as per MUSIC 3D system for
inventory control :
Summarty of Spares and Stores as on
Sl. Particulars Ideal/Sanction Actual Last Month Lastyr. Todate
No. Mar-05 Feb-05 Mar-04
Spares Stores Total Spares Stores Total Spares Stores Total Spares Stores Total
1. Stock Items
2. Department
Requirement
2.1 Regular items-
consumabls
2.2 Slow Moving
3. Dept. Specified
4. Insurance
5. Surplus Stock
6. Others
Total
Figure 33 : Spares and Stores details

STORES
2) The following table shows a consolidated Stores Inventory Ageing report:
Stores Inventory Ageing (Summary Report)
Purchase Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Cum.
A) Stock Items
Purchases : Up to Mar 00
Purchases : Apr 00 to Mar 01
Purchases : Apr 2004
Purchases : May 2004
Purchases : Jun 2004
Purchases : Jul 2004
Purchases : Aug 2004
Purchases : Sept 2004
Purchases : Oct 2004
Purchases : Nov 2004
Purchases : Dec 2004
Purchases : Jan 2005
Purchases : Feb 2005
Purchases : Mar 2005
Sub Total
B) Department Requirement
Sub Total
C) Insurance spares and stores
Sub Total
D) Obsolete spares & Stores
Sub Total
E) Others
Sub Total
Grand Total
Figure 34 : Inventory ageing report
3) The following table shows a consolidated report on obsolete inventory:
Obsolete Inventory As On
Sl. No. Dept. Item Code Item Description UOM Qty. Value
Figure 35 : Obsolete Inventory report

STORES
4) The following table shows a consolidated report on scrap inventory status:
Scrap Inventory Status
Item Code Item Description UOM Opening Receipts Closing Sale
Qty. Net Value
Figure 36 : Scrap inventory report
5) The following table shows the consumption status :
Statement of Raw Materials as on
(Rs. in lacs)
Sl. No. Particulars Opening Stock Purchases during Consumption during Consumption Closing Stock
the Month the Month To Date
Qty Rate Amt Qty. Rate Amt Qty. Rate Amt Qty. Amt Qty. Rate Amt
Figure 37 : Consumption report
6) The following table shows a consolidated report on slow moving inventory:
Slow Moving Items Date :

No. of Months :
Quantity in stock greater than :
Item value greater than :
Item Code Item Description Location UOM Initial Class/ Qty. in stock Moving Wtd. Item Value Last issue
Type avg. rate date
Figure 38 : Slow Moving inventory

STORES
7) The following shows Internal Customer satisfaction survey format:

Materials Management - (Stores & Purchase Department)
Roles and Responsibilities of Supplier Department: Rating:

Customer Dept: Period:
Rating
Sl. No Services
2 Issue of Material
b Proper storage / Preservation 5
3 Work Orders
Rating
Sl. No People Orientation
Suggestions, if any.
Any critical incident you would like to report Sign of HOD (Customer Dept)
Figure 39: Internal customer satisfaction survey report

STORES

Roles and Responsibilities of Supplier Department Rating:
Rating
Sr Services Departments
Max.
No. 1 2 3 4 5 Avg.
2 Issue of Material
b Proper storage / Preservation 5
3 Work Orders
Sub Total A 55
B People Orientation
2 Attitude / Behaviour 5
Sub Total B 15
Grand Total 70
Figure 40: Departmentwise Internal customer satisfaction survey report

STORES
8) The following shows inventory report:
Inventory Report
Sl. No. Item Code Item Description Stock in hand Rate Value Location
Figure 41 : Inventory report
9) The following report shows Report on process efficiency of material management:
RAISING OF INDENT TO PASSING OF BILL STATUS
Indent Indent Pr Pr app PO PO Item Item PO GRN GRN Ins GRN app Bill Bill Payment
No. Dt. Dt. Dt. No. Dt. Code Desc. Qty. No. Dt. Dt. Dt. No. Dt. Dt.
Figure 42 : Process Efficiency report

SECTION - C

JULY, 2005
CONTENTS
TABLE OF CONTENTS
1. Annexure A ........................................................................................................................... 112
1.1 Sampling procedures for bulk raw materials........................................................................... 112
1.2 Raw Material specifications and acceptance criteria.............................................................. 112
1.3 Work Instruction for Lube / Oil drum Lube / Oil Drum Materials for handling.......................... 113
1.4 Work Instruction for Electrodes, rubber goods and bearing for handling................................... 113
2. Annexure B............................................................................................................................ 114
2.1 Inspection Procedure for common items................................................................................ 114
2.1.1 Sampling plan for Inspection........................................................................................ 118

ANNEXURE
1. ANNEXURE A
1.1 Sampling procedures for bulk raw materials
All the units should have a well written and documented norm for sampling procedure for bulk raw
materials.
It should specify the following:
l How many samples to be withdrawn from each population of truck/tankers?
l Who is responsible to collect the samples?
l Should the clearance for unloading of material be given based on
q Size analysis
q Physical appearance
l For which of the items, second sampling is required?
l When should the second sampling be taken?
l The samples should be properly stored with proper identifications like GRN number, Truck
number etc.
l Who is responsible to send the samples to lab for testing?
l What details are to be recorded in the laboratory log book?
l For which items further analysis is required?
l Who approves the final tested report?
1.2 Raw Material specifications and acceptance criteria
l The unit should maintain detail specification for each raw material.
l It should also specify the conditions for acceptance for each specification.
l The PO terms should include a penalty clause for deviations.

ANNEXURE
1.3 Work Instruction for Lube/ Oil drum Lube / Oil Drum Materials for handling
l Keep lube / oil drums in horizontal position with 2 inch degree slope.
Do’s
q Always use hand trolley.
q Use plate form while unloading drum from the truck.
q While stacking drums inspect the wooden plank.
Dont’s
q Never transfer drum by rolling.
q Never use broken and uneven wooden plank.
q Never throw drum directly on floor from the truck.
q Carry out daily survey of the area and ensure that area is neat and clean. Any spilled oil is
collected immediately and send to Disposal Yard when the drum gets full.
l Any spillage on the floor is cleaned by using saw dust and used saw dust / cotton rags is
collected and send to disposal for further selling / burning in Boiler.
l Inspect the fire checking status on fire equipment installed in the area and verify its operation
during mock drill.
l Ensure no smoking is strictly followed in the area.
1.4 Work Instruction for Electrodes, rubber goods and bearing for handling
Electrodes
l Keep electrodes in cool and dry place in original packing.
Rubber goods
l Store rubber goods like tyres V belts, conveyor belts, hydraulic hoses in dark area away from
oil and grease.
Bearings
l Keep bearings in original packing other wise in polythele bags with ends tighten.
l Bearings should never be handled with bare hand.

ANNEXURE
2. ANNEXURE B
2.1 Inspection Procedure for common items
l The unit should prepare an inspection plan for common items. The plan should include the
following suggested clauses :
q Name of the Item
q Characteristics of the item to be tested
q Sampling procedure to be followed. It should specify how many samples would be

withdrawn from each lot in the population.
q Sampling responsibility – Who is responsible for the same?
q Inspection and test procedure – The required specification should be checked with the
Chemical lab reports
q Records – What records should be maintained for the same?
A sample suggested format is shown as below:
INSPECTION PLAN — AUTO INDENT ITEMS
ITEM NAME
Material/ Characteristics Sampling Sampling Inspection and Inspection and Test Records
Product to be tested Procedure Responsibility Test Procedure Responsibility
Approver: Initiator :
Date : Date :
Figure 1: Suggested format for Inspection Plan of Auto Indent Items

ANNEXURE
Suggested Inspection that should be carried out for the following items:
l Bearings –
Shine of balls, rollers, colour of champhers, fitting & riveting of cage, grinding finish of inner and
outer races, method of writing bearing number, manufacturers mark and country of origin on
bearings, the genuineness of carton etc.
l Alloy Steels –
Chips to be cut from shafts, rods, sheets castings, machined components and metallurgical
laboratory testing should be done for final acceptance.
If chips removal is not possible, then the following method should be followed:
l SS 316 should be kept in flowing spin bath of spinning machine (10% H2SO4 at 50
degree centigrade) for 48 hours to see corrosion.
l Presence or absence of Molybdenum should be checked by Moly Detection Kit.
l Monel and Worthite Components should be kept in boiling spin bath for 48 hours to see
corrosion.
l SS 304 should be checked by a powerful magnet, if it is magnetic, chips are sent to

laboratory.
l Phospher Bronze and Aluminium Bronze should be checked for Chemical composition.
l For 100% purity test, Tin, Copper and Lead should be sent to external specialist agencies
which have Emission Spectometer, and VIDEO – 12 Atomic Absorption.
l Rubber Sheets should be checked for specific gravity, hardness, uniformity of thickness and
surface finish. Colour code system may be adopted for various types of rubber sheets being
purchased.
l Moulded rubber items – If the units do not have any facility to test rubber components, Ash
Content of these items can be found out to ensure that correct quantity of raw rubber and good
quality of Chemicals are used by suppliers.
l Oil Seals should be checked for dimensions, hardness and metallic reinforcement.

ANNEXURE
l Rubber hose for oxygen and acetylene should be checked for bonding between outer and
inner sheaths to ensure quality.
l Conveyor belts and flat belts should be checked for thickness, width, number of plies,
thickness of top and bottom covers, type of reinforcing fabric used (type of carcass)
l Coupling Tyres should be checked for stiffness and number of plies of fabric.
l Silicon Rubber items should be checked for temperature resistance by keeping it at 250 degree
centigrade for 48 hours.
l Pipes should be checked for dimensional accuracy and physical appearance.
l Different types of valves should be checked for material of construction and dimensions. IBR
approved valves should be checked for HEAT No./MELT No. and Serial No.
l Gear boxes and pumps should be checked for specifications. Pumps should also be checked
for material of construction.
l M.S. Bolts – If the unit do not have facility to test yield strength and % elongation of bolts, these
should be checked by applying force by lever till bolt either breaks or gets elongated. Random
samples should be sent to external agencies for testing.
l Bolts having rolled threads have more tensile strength & less % elongation, so bolts with rolled
threads can be purchased and then should be checked to see whether threads are rolled ones or
cut ones.
l Drive chains should be checked for roller dia, pin dia, etc.
l Circlips should be expanded/contracted 18-20 times to see whether correct shape and size is
retained or not.
l Items which are hardened should be checked for hardness with hardness tester.
l All types of flanges should be checked for physical appearance and dimensions.
l Nickel, Chrome plated items should be checked by keeping 45% NaOH for 48 hours at room
temperature.

ANNEXURE
l Wire brushes should be checked for dimensions and quality of wire i.e. hardness, diameter and
spring action of wire.
l Wire mesh up to 60 mesh should be checked for wire dia and mesh size by PICK GLASS.
Finer mesh should be checked for wire dia and mesh by VISOPAN PROJECTION
MICROSCOPE.
l Hexagonal wire netting — As it is not possible to measure length of each roll, rolls should be
weighed to ensure that correct length of wire netting has been supplied.
l Wire ropes should be checked for physical appearance, number of strands and number of
wires per strand.
l Safety goggles should be checked to see that glass used is of ophthalmic/ required grade only.
l Leather hand gloves should be checked for strength.
l Asbestos hand gloves should be checked for temperature resistance.
l Rubber and Surgical hand gloves should be checked manually for strength and in order to
control thickness of latex, weight per pair can be mentioned in the purchase order.
l Each and every gas cutter, gas regulator should be checked by using it for 16 hours.
l Timber should be checked for cracks, harmful knots and solidity.
l Fire bricks should be checked with drawing and for alumina (A1203) percentage. Fire clay
should be checked for alumina percentage.
l Acid Resistant bricks should be checked for water absorption and acid resistance.
l Magnesite Bricks should be checked for MgO%.
l Quartz Pebbles and Quartz Sand should be checked for Acid Resistance by keeping in spin
bath (10% H2SO4) at 60 degree centigrade for 24 hours. Percentage weight loss should not be
more than 0.05%.
l H.S.S. hacksaw blades should be checked for price per unit of life.

ANNEXURE
l Steel Almirahs, panel boards should be checked for quality of painting, thickness of sheet,
shape and size.
l Samples of Tarpaulin should be checked for bursting strength, which should be compared with
rates, to decide economical tarpaulin to be purchased.
l Liquid cleaner should be checked to see if it is soap or detergent.
l Each and every electric tube and lamp should be checked.
l Various types of brooms –Brooms should be purchased based on specifications, mentioning

length, weight and method of binding. These specifications should be the basis for checking.
l Inspection cell should ensure that load test certificates for wire ropes, load lifting equipments,
IBR test certificates, ultrasonic test certificates and hydraulic test certificates, where applicable
are received from suppliers and given to concerned persons.
2.1.1 Sampling plan for Inspection:
l Bearings : Visual Inspection, Complete check and Cage Type
l Steels: EN-8, EN-9, EN-24, EN36, EN353 : Visual, Dimensions & Chemical
composition
l SS-316, SS-316L, SS-317, SS-904L, HAST-C etc : Visual, Dimensions, Chemical

composition and Molybdenum detect.
l SS-304 MATERIAL : Visual, Dimensions & Magnetic test
l Monel Metals, Alloy-20,Worthite : Visual, Dimensions & Chemical composition
l Phosphor Bronze, Aluminium Bronze : Visual, Dimensions & Chemical composition
l Tin : 99.9% purity test by Spectro analysis
l Copper : 99.9% purity test by Spectro analysis
l Lead : Dimensional check and Chemical composition

ANNEXURE
l Lead Pipes : Dimensional check and Chemical composition
l Rubber : Surface finish, Dimensions, Thickness and Sp. Gr.
l Polymer content : Ash content, Temp. resistance, Temp. & CS2 resistance and
Hardness : Shore A,D
l Seals : Dimensional check, Surface condition, Physical condition of edge, Size and
Temp. resistance
l Hoses : Dimension and Pressure Rating
l Bells : Dimensions, Visual defects, Edge condition, No. of plies and Type of reinforcing
fabric
l Couplings : Dimensions, Make and Size
l Pipes : Dimensions, Visual, Composition, Spark Testing and Hardness: Shore A, D
l Pipe Fittings : Dimensions, Visual, Composition, Spark Testing and Hardness:

Shore A, D
l Gear Boxes : Visual & Specifications
l Pumps : Visual, Specifications and Composition
l Valves : Visual, Specifications, Composition and IBR Certificate
l MS Hard wares : Visual, Size and Make / Brand
l HT Hard wares : Visual, Size, Make / Brand and Tensile strength
l Tools : Visual, Size, Make / Brand and Product No.
l Chains / Sprockets : Visual, Size (Pitch, No. of teeth) and Make / Brand
l Machined Spares : Dimensions, Visual, Composition, Hardness and Ultrasonic Test
l Brushes : Dimensions, Visual, Make and Acetone Test

ANNEXURE
l Wire Mesh : Dimensions, Visual, Composition and Hardness
l Rope : Size, Strands and Test certificate
l Hand gloves : Size, Weight and Apparent defects
l Regulators : Trial by actual use and Make
l Wood : Type, Size, Surface defects and Treatment
l Bricks : Size and Composition
l Chemical resistant Bricks : Size and Composition
l Porosity : Size and Composition
l Quartz : Mesh Size
l Acid resistance : Size
l Motors : Specifications and Make
l Electronic Items : Specifications and Make

RITY
INTEG COM
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www.cygnusadvertising.com, 9830161350
SPEED
JULY, 2005

ADITYA BIRLA MANAGEMENT CORPORATION LIMITED
Industry House, 17th Floor, 10 Camac Street, Kolkata – 700 017
Phone – 91-033-2282 5603/04, E-mail – msd@adityabirla.com MANAGEMENT SERVICES DIVISION

Management Services Division Management Services Division

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RITY

MANAGEMENT SERVICES DIVISION

l Integrity l Commitment l Passion l Seamlessness l Speed

l Ultra Tech Cement

l Grasim Chemical Nagda

l Mr. Om Prakash, Hindalco

l Mr. Arun Jani and Mr. Gitesh Shah, Birla Copper

l Mr. Ajay Singh, Indo Gulf

l Mr. Prashant Davangeri, Ultra Tech

l Mr. Dinesh Kalantri and Mr. Raghunath Panigrahi, SFD Nagda

l Mr. Manoj Kedia and Mr. Shireesh Jain, IRIL CFD

for IT enablement of key operations within materials management.

6. Vendor Performance Assessment.................................................................................... 35

1. Annexure A.................................................................................................................... 112

2. Annexure B.................................................................................................................... 114

MANAGEMENT SERVICES DIVISION

SOP-Purchase and Stores 1

6.5 Vendor Assessment ...................................................................................................................... 43

2 Management Services Division

The Materials Management process should be a fully integrated IT processed system.

Sends intimation for material inspection

Figure 1: Procurement activity chart showing Material Management integrated workflow

SOP-Purchase and Stores 3

l Information about stock items is available to the user departments.

l Vendor database is created in the system by the Purchase department.

l Enquiry is floated by the Purchase department to Vendors.

l Vendor confirms the order.

l Stock moves from Stores to User department.

4 Management Services Division

l Accounts department gives financial concurrence to the Purchase department.

l Purchase department informs user department on status of overdue PO.

SOP-Purchase and Stores 5

Raw Material Stores and Spares Capex items

Figure 2 : Levels of Delegation Authority

6 Management Services Division

l Indent for items in excess of the warranted limit.

l New vendor approval

l Amendment of vendor master

l Emergency, verbal or cash purchases

l Amendment and/or cancellations of POs

l Price increase for job contracts.

l Hold payment authorisation

SOP-Purchase and Stores 7

Raises Receive &

Negotiation & Receive offer &

Inform and return to No Items

Figure 3: Work flow in Purchase department

8 Management Services Division

3.1 Identification and Registration of a Vendor

l Emergence of New Technology for manufacturing process and Material of Construction

l Compress Lead Time

New vendors can be identified by any of the following ways:

Purchase Department Vendors

Set vendor selection

Identify new Prepare request Solicit quotes

Generate P.O. & Receive orders and

Figure 4: New vendor selection process

SOP-Purchase and Stores 9

3.2 Supplier Evaluation Report

l New vendors must fill the Vendor Evaluation Report.

l New vendors should be evaluated by the Technical department, if required.

10 Management Services Division

SUPPLIER EVALUATION REPORT