Cut costs using Modern Supply Chain Management practices !

Goals of a commercial enterprise
 Increase income or sales of a company by 20-30%
per annum.
 Cut-costs by all employees / departments by 10% per
annum.
 Improve quality of goods and services produced.
 Improve productivity, efficiency of people, processes
and equipment
 Benchmark with the best competitors
 Observe all rules listed on the labour ministry
website. Manage Trade Unions.
 Use alternative materials / substitutes wherever
possible
 Hire experienced and competent staff with Integrity
 .

Goals of a commercial enterprise
 Use modern technology /proven cutting edge Technology.
 Unit cost of production should be lower than your competitors
 The organization should have a clear mission, vision, quality policy
and organization chart.
 Monitoring the progress of all departments on a weekly/daily basis.
 Use latest tools & software for IT/telecom/security and designing
(CAD/CAM)
 Minimize organization politics by incentives schemes for Team
productivity.
 Improve Customer service that is ,follow customer centric policies.
 Move UP the Value Chain.
 Work 300 days a year.
 Use latest Management Principles.

Objective (s) of SCM / Procurement
session.
 What is Supply Chain Management ?
 What is Procurement ?
 Sample Products / Solutions
 Key Terms
 Porter’s Five Forces Model
 Breakup of Construction Costs
 Block Diagram of Purchase proceedure by Govt/PSU/TNC organizations
 Qualities of a good Procurement Manager
 Procurement Policy (Indian Railways).
 E-Procurement by DGS&D.
 Samples Tenders from NTPC, BHEL, SAIL, MES, PWD, CPWD, etc.
 Case study on e-Procurement by Andhra Pradesh Govt..
 SAP R/3 and Block Diagram
 References

Definition (Supply Chain Management)
 Supply chain management (SCM) is the management of a network of
interconnected businesses involved in the ultimate provision of
product and service packages required by end customers (Harland,
1996). Supply Chain Management spans all movement and storage
of raw materials, work-in-process inventory, and finished goods from
point of origin to point of consumption (supply chain).
 APICS Dictionary defines SCM, as the "design, planning, execution,
control, and monitoring of supply chain activities with the objective of
creating net value, building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with demand, and
measuring performance globally."

B2B products for Procurement
Chetak Helicopter (HAL) BHEL Gas Turbine
Tata Motors DTC Bus Intergraph CAD Solution (PDS)

Supply Chain Management (Block Diagram)

Terms
 RFI – Request for Information
An open enquiry that spans the market seeking broad data and
understanding.
 RFQ – Request for Quotation
An opportunity for potential suppliers to competitively cost the final
chosen solution(s).
 RFT – Request for Tender
An opportunity for potential suppliers to submit an offer to supply
goods or services against a detailed tender.
 RFP – Request for Proposal
Sometimes based on a prior RFI; a business requirements-based
request for specific solutions to the sourcing problem.

FOB, CIF, FOR and Rate Contract Definition
 Freight On Board. FOB specifies which party (buyer or seller) pays
for which shipment and loading costs, and/or where responsibility for
the goods is transferred. The last distinction is important for
determining liability for goods lost or damaged in transit from the
seller to the buyer.
 CIF - A trade term requiring the seller to arrange for the carriage of
goods by sea to a port of destination, and provide the buyer with the
documents necessary to obtain the goods from the carrier.
 FOR , Abbreviation: f.o.r. (of a consignment of goods) delivered to a
railway station and loaded onto a train without charge to the buyer
 A Rate Contract or a Rate Agreement (RC in short) is a
procurement cost reduction stategy aimed at standardizing
procurement prices for commonly procured, homogenous and price
varying inputs. DGS&D (Government Department) does annual rate
contract with eligible suppliers for supply of goods to various
government agencies.

Request for Quotation (RFQ)
 RFQ’s are best suited to products and services that are as standardised and as
commoditised as possible. Why? To make the suppliers’ quotes comparable.
 An RFQ is a solicitation sent to potential suppliers containing in exacting detail
a list or description of all relevant parameters of the intended purchase, such
as:
 Personnel skills or competencies
 Part descriptions/specifications or numbers
 Quantities/Volumes
 Description or drawings
 Quality levels
 Delivery requirements
 Term of contract
 Terms and conditions
 Other value added requirements or terms
 Draft contract
 Price per item or per unit of service is the bottom-line with RFQ's, with other
dimensions of the deal impacting the analysis process as determined by the
buyer. Supplier decisions are typically made following a comparison and
analysis of the RFQ responses.
 RFQs are typically used as supporting documentation for sealed bids (either
single-round or multi-round) and may be a logical pre-cursor to an electronic
reverse auction.

Logistics
 Logistics is the management of the flow of goods and
services between the point of origin and the point of
consumption in order to meet the requirements of
customers.
 Logistics involves the integration of information,
transportation, inventory, warehousing, material
handling, and packaging, and often security. Logistics is
a channel of the supply chain which adds the value of
time and place utility.
 Today the complexity of production logistics can be
modeled, analyzed, visualized and optimized by plant
simulation software.

Letter of Credit
 A standard, commercial letter of credit (LC) is a
document issued mostly by a financial institution/Bank,
used primarily in trade finance, which usually provides an
irrevocable payment undertaking.
 The letter of credit can be a source of payment for a
transaction, meaning that redeeming the letter of credit
will pay an exporter. Letters of credit are used primarily
in international trade transactions of significant value, for
deals between a supplier in one country and a customer
in another. In such cases the International Chamber of
Commerce
Uniform Customs and Practice for Documentary Credits
applies (UCP 600 being the latest version).

 FORMAT FOR LETTER OF CREDIT(FOB)
 FROM :( NAME * & ADDRESS OF OPENING BANK )
 TO :( NAME & ADDRESS OF ADVISING BANK )
 (For Shipments from Haldia ) STATE BANK OF INDIA OVERSEAS BRANCH KOLKATA
SWIFT CODE SBININBB106
 (For Shipments from Vizag ) STATE BANK OF INDIA OVERSEAS BRANCH VIZAG SWIFT
CODE SBININBB123
 40A TYPE OF L/C :IRREVOCABLE
 20 L/C Number :
 31C DATE OF ISSUE :
 31D DT. & PLACE OF EXPIRY : __________________________________IN INDIA
 50 NAME & ADDRESS OF THE:
 APPLICANT
 59 NAME & ADDRESS OF THE: Steel Authority of India Limited,
 BENEFICIARY Central Marketing Organization, Ispat Bhawan
 40 J.N.Road, Kolkatta-700071, India
 32B AMOUNT OF CREDIT IN :
 US DOLLARS /EURO/ANY
 OTHER FREELY
 EXCHANGEABLE CURRENCY
 (IN FIGURES & WORDS)
 39A PERCENTAGE CREDIT : AS PER CONTRACT
 AMOUNT TOLERANCE
 41A CREDIT AVAILABLE WITH: STATE BANK OF INDIA, KOLKATA/VIZAG and or
ANY BANK IN INDIA
 CREDIT AVAILABLE BY : NEGOTIATION
 42C DRAFTS : AT SIGHT
 42A DRAFTS TO BE DRAWN ON:
 43P PARTIAL SHIPMENT : AS PER CONTRACT
 43T TRANSHIPMENT : AS PER CONTRACT
 44A SHIPMENT FROM :

Contract
 Definition
 A voluntary, deliberate, and legally binding agreement between two or more
competent parties. Contracts are usually written but may be spoken or
implied, and generally have to do with employment, sale or lease, or
tenancy.
 A contractual relationship is evidenced by (1) an offer, (2) acceptance of the
offer, and a (3) valid (legal and valuable) consideration. Each party to a
contract acquires rights and duties relative to the rights and duties of the
other parties. However, while all parties may expect a fair benefit from the
contract. It does not follow that each party will benefit to an equal extent.
Existence of contractual-relationship does not necessarily mean the contract
is enforceable, or that it is not void (see void contract) or voidable ).
 Contracts are normally enforceable whether or not in a written form,
although a written contract protects all parties to it. Some contracts, (such
as for sale of real property, installment plans, or insurance policies) must be
in writing to be legally binding and enforceable. Other contracts (see implied
in fact contract and implied in law contract) are assumed in, and enforced
by, law whether or not the involved parties desired to enter into a contract.


B2B Contract
B2B Marketer Business B2B Consumer
Contract
Goods
services
Goods
services
Payment

Works Contract
“Works Contract” means a contract
wherein, —
(i) transfer of property in goods involved in the execution of such contract is
leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out—
a) erection, commissioning or installation of plant, machinery, equipment or
structures, whether pre-fabricated or otherwise, installation of electrical and
electronic devices, plumbing, drain laying or other installations for transport
of fluids, heating, ventilation or air-conditioning including related pipe work,
duct work and sheet metal work, thermal insulation, sound insulation, fire
proofing or water proofing, lift and escalator, fire escape staircases or
elevators; or
b) construction of a new building or a civil structure or a part thereof, or of a
pipeline or conduit, primarily for the purpose of commerce or industry; or
c) construction of a new residential complex or a part thereof; or
d) completion and finishing services, repair, alteration, renovation or
restoration of, or
similar services, in relation to (b) and (c); or
e)turnkey projects including engineering, procurement and construction or
commissioning (EPC) projects”

Liquidated Damages
 ‘Liquidated Damages’ means that it shall be taken as the sum which
the parties have by the contract assessed as damages to be paid
whatever may be the actual damage.
 The parties to the contract may agree at the time of contracting
that, in the event of a breach, the party in default shall pay a
stipulated sum of money to the other, or may agree that in the event
of breach by one party any amount paid by him to the other shall be
forfeited. It is a genuine “pre-estimate of damages” likely to flow
from the breach.
 However, this liquidated damage shall be distinguished from the
term “penalty” which is an amount intended to secure performance
of the contract.

Arbitration
 ‘Domestic arbitration’ means an arbitration relating to disputes arising out of
legal relationships, whether contractual or not, where none of the parties is,-
 (i) an individual who is a national of, or habitually resident in, any country other
than India; or
 (ii) a body corporate which is incorporated in any country other than India; or
 (iii) an association or a body of individuals whose central management and
control is exercised in any country other than India; or
 (iv) the Government of a foreign country,
 and shall be deemed to include, international arbitration and international
commercial arbitration where the place of arbitration is in India.
 International arbitration’ means an arbitration relating to disputes arising out
of legal relationships, whether contractual or not, and where at least one of
the parties is,-
 (i) an individual who is a national of, or habitually resident in, any country other than
India; or
 (ii) a body corporate which is incorporated in any country other than India; or
 (iii) an association or a body of individuals whose central management and control is
exercised in any country other than India; or
 (iv) the Government of a foreign country:
 (f) International commercial arbitration’ means international arbitration
considered as commercial under the law in force in India;

4 per cent Service Tax on Works Contract
based on payment received
• The Government has revised the rate of service tax from 2 per
cent to 4 per cent under composition scheme on Works
Contract vide Service Tax Notification No.7/2008 dated 1st
March 2008.
• Doubts were raised whether the changes of the rates on the
work contract services revised in the Budget 2008, from 2% to
4% would be effective from 1st March, 2008 in cases of ongoing
contract i.e. where these services were agreed to be provided
prior to 01.03.08 but the actual provision of the services took
place after 01.03.08.
• It has been clarified by CBEC that the service tax becomes
chargeable on receipt of the payment and on the amount for
receipt. Therefore, the rate of 4 per cent is applicable for the
work contract where the payment of service is receipt on or
after 01.03.08

Michael Porters Five Forces Model Force 1: Barriers to entry
 Barriers to entry measure how easy or difficult it is for new entrants to enter
into the industry. This can involve for example:
 Cost advantages (economies of scale, economies of scope)
 Access to production inputs and financing,
 Government policies and taxation
 Production cycle and learning curve
 Capital requirements
 Access to distribution channels
 Patents, branding, and image also fall into this category.
Force 2: Threat of substitutes
 Every top decision makes has to ask: How easy can our product or service
be substituted? The following needs to be analyzed:
 How much does it cost the customer to switch to competing products or
services?
 How likely are customers to switch?
 What is the price-performance trade-off of substitutes?
 If a product can be easily substituted, then it is a threat to the company
because it can compete with price only.

Michael Porters Five Forces Model (Cont.)
Force 3: Bargaining power of buyers
 Now the question is how strong the position of buyers is. For
example, can your customers work together to order large volumes to
squeeze your profit margins? The following is a list of other examples:
 Buyer volume and concentration
 What information buyers have
 Can buyers corner you in negotiations about price
 How loyal are customers to your brand
 Price sensitivity
 Threat of backward integration
 How well differentiated your product is
 Availability of substitutes
 Having a customer that has the leverage to dictate your prices is not a good
position.
Force 4: Bargaining power of suppliers
 This relates to what your suppliers can do in relationship with you.
 How strong is the position of sellers?
 Are there many or only few potential suppliers?
 Is there a monopoly?
 Do you take inputs from a single supplier or from a group? (concentration)
 How much do you take from each of your suppliers?

Detailed Project Report(DPR)
 Vizag Steel Plant (now called)
 (Rashtriya Ispat Nigam Ltd.)
 Consultant M.N Dastur

Vizag Steel (RINL) Plant DPR
 Vol. – 1 – Summary
 Vol. – 2 – Product Mix, Raw Material, Production Technology and
Plant Layout
 Vol. – 3 – Coke and Iron making
 Vol. – 4 – Steel making and Rolling Mills
 Vol. – 5 – Power, Lighting and Instrumentation
 Vol. – 6 – Utilities and Environment Control
 Vol. – 7 – Auxillary facilities
 Vol. – 8 – Plant Construction
 Vol. – 9 – Plant Management and Man power
 Vol. – 10 – Costs, Financial Analysis and Future Expansion
 Vol. – 11 – Drawings – Raw Material, Plant site and General Layout
M.N.Dastur was Consultant to RINL

 Vol. – 12 – Drawings – Coke Ovens and By-product plant
 Vol. – 13 – Drawings – Sinter Plant
 Vol. – 14 – Drawings – Blast Furnace
 Vol. – 15 – Drawings – Steel Melting Shops
 Vol. – 16 – Drawings – Rolling Mills
 Vol. – 17 – Drawings – Iron/Steel Making
 Vol. – 18 – Drawings – Power Plant
 Vol. – 19 – Drawings – Power Systems, Lighting
 Vol. – 20 – Drawings – Water systems
 Vol. – 21 – Drawings – Utilities, work transportation / labs
 Vol. – 22 – Drawings – Repair shop and storages
 Vol. – 23 – Drawings – Ancillary Buildings and Plant Construction

 Vol. – 24 – General specifications
 Vol. – 25 – Technical specs for RM handling
 Vol. – 26 – Technical specs for Coke ovens
 Vol. – 27 – Technical specs for Sinter plant
 Vol. – 28 – Technical specs for Blast furnace
 Vol. – 29 – Technical specs for Steel melt shops
 Vol. – 30 – Technical specs for Rolling mills
 Vol. – 31 – Technical specs for Power plant
 Vol. – 32 – Technical specs for Utilities
 Vol. – 33 – Technical specs for Auxiliary facilities
M.N.Dastur Consultants

Purpose of Procurement
 To identify competent procurement team , purchase processes ,Budgeting
 To follow Government procedures for File approval, Fund Allocation, Fund
Disbursement.
 To identify Engineering Consultants with proven track record & settle terms.
 DPR to define the scope of various Tenders, Identify Potential list of Eligible
suppliers, to reduce time of purchase, Competitive transparent Bidding,
Contract drafting on CIF basis, Advance Payments thru L/C against Bank
Guarantee, Ensuring physical delivery, Installation of Equipment, Trial
Production, Quality Checking as per standards, Warranty Services, Mile
Stone Based Payments.
 To have integrated approach towards desired objectives compliant with
drawings, specifications, standards, quality, time deadlines.
 To examine tax benefits under Govt policy applicable to backward areas (if
any)
 To examine E-procurement as viable alternative to Manual Tendering.
 To integrate Procurement with SAP R/3 software

Procurement Management
 Procurement management process involves managing the order,
receipt, review and approval of items from suppliers. Procurement
management also specifies about the management of supplier
relationships, to ensure better service. This is a critical task in
Procurement Management. In short, the procurement process helps
you "get what you have paid for".

Prof. Sanjeev Bahadur
Prof. B.K. Jha
Hitesh Gupta

Qualities and Job description of a Procurement Manager
 To ensure that procurement and supply of materials out of the warehouse to keep
abreast of the situation, the material for the production of a lack of preparation for the
corresponding procurement.
 Development of materials procurement plan: schedule (generally two weeks or a
month for a period) formulation material procurement plan, including the focus on the
choice of materials, material price, quantity, supplier selection.
 Specific procurement: including mining prices, bargaining, negotiation conditions with
suppliers, suppliers of materials and the introduction of delivery methods.
 Materials Management: including an examination of the situation and out of the
storage of materials and found that best-selling and slow-moving materials, slow-moving
material handling, sorting stock, inventory and so on.
 Storage materials, staff training: the training materials to assist staff members to
understand the material properties of the material and characteristics, to master
certain material knowledge for materials operating conditions.
 Buyer's quality requirements in terms of procurement staff, ability and quality are
higher, these requirements include the following:
 Rich commodity market knowledge.
 In the company's ability to communicate with other departments.
 Familiar with the business operations and sales.
 And have a strong bargaining power bargaining.
 With a hard-working professionalism.
 The physical good, look smart and capable.
 There is a strong judgments and decision making.

PROCUREMENT IN
INDIAN RAILWAYS

Indian Railways
 Indian Railways are one of the largest
railway system under single managament.
 Total route KM is > 63,465 KM
 No of locomotives > 7900
 No of freight wagons > 222,370
 No of passenger coaches > 42,440
 No of persons employed > 1.6 million

Purchases by Indian Railways
 Indian Railway’s :
 Annual Turnover : > Rs. 500 billion
 Annual purchases for supply of goods including
Fuel oil : > Rs 130 billion
 Annual Works : > Rs 120 billion
 Purchases are made through process of
competitive bidding.
 High value purchase mainly through Advertised
Tenders.

Railways Procurement Policy
 I.R. have formulated well established
procurement policies which have evolved over
central theme of ensuring
 Transparency
 Fair play
 Quality procurement
 Competition and Equal opportunity to all eligible
vendors

Purchase of goods at Railways
 Procurement of goods, Raw materials, and equipments
for Production, Operation, & maintenance of large fleet
of Rolling stock of all types.
 Rails, Track machines/fittings, WheelsAxles.
 Steel, Cement for construction work.
 Diesel, Oil and lubricants, chemicals.
 Workshop plants, machines and tools.
 Rolling stock spares.
 Electrical, Signaling and Telecom equipment and spares.
 Staff welfare, healthcare and passenger amenity items.

IR Purchase Breakup
 Indigenous purchase : More than 95%
(Rs 124 bn)
Imports : 5% (Rs. 6 bn)

PROCUREMENT POLICY (I.R)
 Procurement are made through process of competitive
bidding.
 Advertised Tender documents are uploaded on website
for free access, viewing and downloading.
 Vendor approvals are based on Capacity assessment
coupled with Quality Assurance Plan.
 Centralized vendor approvals for safety, Critical and Vital
items.
 Vendor performance Assessment integrated with
procurement.

Procurement Procedure (I.R)
 Indigenous Procurement :
 Limited (selective) Tenders : Upto Rs. 5 lacs
 Advertised Tender : Above Rs. 5 Lacs
 Imports:
 Global Tendering
 Pre-dispatch inspection agency.
 R.D.S.O. Lucknow and RITES
 Procedure for charging Bid and Contract security.
 Bank Guarantee (B.G.) for warranty obligations.

Procurement Procedure (Contd)
Indigenous:
 Payments after receipt of materials for Road dispatches,
against proof of dispatch by Rail.
 Levy of liquidated damages for delays in supply.
 Joint Inspection in cases of Rejections and Recoveries
thereafter.
 Purchases are generally based on Firm Price.
 Price variation clause permitted on merits.
 Safety, critical, vital and high value items procured from
approved sources only.
 Multi-sourcing for Safety, critical, vital & high value items.

Quality procurement plan (I.R)
 R.D.S.O, Lucknow (Central approving Agency)
for vendor approvals.
 Source approval are for Developmental and Bulk
ordering.
 Manufacturing and Technical capabilities of
indigenous vendor pre-examined by RDSO
before approvals.
 Periodical monitoring of approved sources for
quality performance.

Railways Evaluation Criteria
 Offers evaluated based on total
destination cost.
 Indigenous offers evaluated by including
all Taxes, Duties and Inland freight upto
Destination.
 Import offers evaluated by including FOB
Cost, Insurance, Sea/air freight not
included)

Issues to be addressed for Government
Procurement Agreement.
 Threshold level for Central Govt. as per WTO-GPA : >
Rs. 80 Lacs.
 With such low threshold value GPA will cover more than
50% of I.R. purchases.
 Presently Global Procurement is adopted by Central
Govt. for high value tenders only.
 Capacity assessment is still required for foreign vendor
for Q.A.P. on par with indigenous venders.
 Ministry of Railways/RDSO to be given full freedom for
overseas travel for Inspection of foreign vendor.
 Existing price/purchase preference to Indian SSI/PSU
need to be reviewed.

Issues to be addressed
 Ministry of Petroleum to allow GPA for POL*
Items.
 Existing conditions for shipping need to be
revised to allow shipment of goods without
restricting Shipment through SCI/Air India.
 Payment to Indian suppliers are made after
receipt of goods while in Imports payments is
thru Letter of credit. This need to be reviewed for
uniformity.
*POL = Petroleum, Oil, Lubricants

 GPA will cover more than 50% of Railways procurement
value with threshold value>Rs. 80 lacs.
 Price escalation clauses where ever necessary can not
be identical between domestic and foreign suppliers.
 When different Zonal Railways issue tenders for identical
items with varying tender values, some tenders may
attract GPA while others may not because of threshold
value. This shall pose problems within Indian Railways

 For delays in supply Liquidated damages are
levied. Such penalty deductions need to be
incorporated in import supplies also while
obtaining payments thru L.C.
 Most indigenous purchases are made with Firm
price. ‘Exchange rate fluctuations will render
Import prices (in Rs. terms) variable. They shall
never be firm, in Rs terms.

 Need for providing base service setup in
India for rendering after sale service,
warranty obligations and service support
at each user location points.
 Foreign firms to setup adequate
infrastructure in India for meeting pre-inspection,
rejections, follow up and post
warranty maintenrise etc.

Procedural Implications:
 Expensive procedural obligations to fulfill stringent
transparency norms.
 Likely delay in tender finalization process.
 Decision to abandon purchase in GPA tenders may be
subjected to challenge and scrutiny.
 Quality and capacity assessment of foreign vendors will
be prohibitively costly when compared to domestic
suppliers.
 Pre-inspection at overseas will be costly.
 Payment terms are not at par between domestic and
foreign suppliers.

Policy review
 Existing practices need to be reviewed such as :
 Selective/restrictive advertisement.
 Splitting of awards to more parties.
 Negotiations in routine manner with lowest (L1)
bidder.
 Domestic price and purchase preference
guidelines.
 Opening time for GPA will be longer.

E-procurement Definition
 E-procurement (electronic procurement, also known
as supplier exchange) is the business-to-business or
business-to-consumer or Business-to-government
purchase and sale of supplies, Work and services
through the Internet as well as other information and
networking systems, such as
Electronic Data Interchange and
Enterprise Resource Planning.
 E-procurement Web sites allow qualified and registered
users to look for buyers or sellers of goods and services.
Depending on the approach, buyers or sellers may
specify costs or invite bids. Transactions can be initiated
and completed. Ongoing purchases may qualify
customers for volume discounts or special offers.

Examples of E-procurement in India
 DGS&D
 Govt. of Andhra Pradesh
 Govt of Karnataka
 Tradeindia.com
 SAIL
 NTPC
 BHEL
 Tendertiger.com

E-PROCUREMENT
in
Directorate General of Supplies &
Disposal
(DGS&D), New Delhi

E-Procurement - Components
 E-Purchase
 Registration
 Store coding
 Technical Particulars
 Evaluation of Bids
 Award of Rate Contract
 E-Inspection / Supply
 Supply Order
 Inspection
 Dispatch Details
 Receipt Details
 E-Tendering
 Tender Notice
 Tender enquiry
 Bid submission
 Bid opening
 E-Payments
 Bill submission
 Processing
 Payments
 Debit Adjustments
 Status
 Complaints

Background - Organization
DGS&D - a Central Purchase Organization under
Govt of India
 Headquartered at New Delhi with three regional purchase
offices in Metros and 27 QA offices in major industrial towns
 Purchase directorates organized commodity wise to
facilitate maintenance of data, market intelligence,
technological advancement in product and processes
 Quality Assurance offices located near users and industry
to facilitate quick response
 Technical and multi-disciplinary workforce including two
Group “A” engineering services recruited thru UPSC
 ISS (Purchase) officers posted in other ministries to assist
in procurement of exclusive item

Background – Role (DGS&D)
 DGS&D is engaged in diversified activity like-
 Conclusion of Rate Contracts for over 350 product
categories involving 20,000 items besides spares etc.
 6,000 GoI users spread across the country
 Serves / facilitates over 10,000 tenderers including 2600
DGS&D registered suppliers,
 Pre-despatch inspection against DGS&D contracts and
direct orders on request
 Formulate procurement policies and procedures
 Cargo clearance at major ports
 Provide consultancy in the procurement management
 Goods procured worth over Rs 3500 Crores during 2004-05
 DGS&D provides single point contact for Govt users and
vendors/suppliers for procurement of commonly used goods

E-Procurement - Benefits
 Increased Transparency and Wider Competition
 Simplify and Speed up Tendering Processes
 Real Time Generation of Detailed and Accurate Data –
Elimination of Human Error
 Seamless sharing of Information
 Ease of Operation and Quicker Decision
 Comprehensive Website to Facilitate Tendering, Contracting,
Ordering and Retrieval of Information to Authorized
Functionaries - Online Interaction avoiding Physical Visits
 Facilitating Pre and Post Contract Management
 Reduction In Cost of Government Purchases

Challenges (1)
 Integration of Nation wide spread of DGS&D
Purchase and QA offices
 Multiple Matrices of Rate Contract as against
Single/Limited Matrix of Fixed Quantity (Ad-hoc)
Contracts
 Integration of
 Large Govt user base including those in far flung areas
(over 6000)
 Tenderers spread across the country (over 10000)
 Registration of vendors (over 2600)
 Management of over 2,500 Contracts and 60,000
supply orders
 Different Purchase Directorates have different
requirements

Challenges (2)
 Adherence to GFR, DGS&D Manual,
CVC Guidelines and other Instructions
issued by Government
 Interface with External Agencies like
NSIC, DGQA (Defence), BIS etc.
 People and Process Change
management
 Technical challenges like IT
Infrastructure, Data Security, backups,
etc.

DGS&D
A comprehensive DGS&D website facilitates –
 A single access point for DGS&D officers, suppliers
and customers
 Downloading of DGS&D Manual, forms, conditions
of contract, circulars
 Notices, agenda and minutes of the Consultative
Meetings
 Suppliers registration
 Download of summary and full text of Parallel Rate
Contracts
 Creation and Hosting of
 Tender enquiries & tender notices and corrigenda
 Rate contracts,
 Technical specifications,
 Store directory.

DGS&D Website
 Provides access to Indentor’s page and
Vendor’s page for the following activities –
 Indentors Page-
Online placement of supply orders
Entering Receipt Particulars of stores
Intimation regarding shortages/quality
Suggestions for bringing new items on RC
 Vendors page
Online inspection call
Entering dispatch particulars
Online submission of Bills
Suggestions for bringing new items on RC

e-Procurement Solution – Interactive
Modules - Current Status
 Store Directory – Coding of All RC items Complete
 Registration module – Database of all registrations (over 2600)
 Tender module –
 Tender Notices & Tender Enquiries – 225 RC cases since Jul’05
 Rate Contract Module – 220 RC cases since Jul’05 involving
over 1300 parallel RCs.
Other Parallel Rate Contracts not due for renewal placed on
database
 Inspection Module
 Supply order module- Lateral entry of over 5000 supply orders
 Inspection note module – over 3800 inspection notes

e-Tendering
 E-Tendering System
 Online Publishing & download of tender enquiries
 Supplier registration
 Online bid submission by suppliers
 Online bid opening & witness by suppliers
 Spot Price Comparative Chart
 Security Audit by STQC
 65 RC tenders opened online
 Over 600 bids submitted through e-tendering
(https://dgsnd.govtprocurement.com)

e-Tendering - Benefits
To DGS&D :
 Greater Transparency
 Reduced process cycle time
 Reduced costs
 Improved image
 Instant availability of real time information
 Cartel Breaking
To Suppliers:
 Reduced costs
 Convenience of transacting online with DGS&D
 No physical visits to DGS&D
 No pressure of cartel
 Increased opportunities

e-Payment
 E-Payment System
 Documents receipt
 Bill submission
 Processing
 Payments
 Debit adjustments

CVC Circular No. 4/3/07
Tendering process-negotiations
As post tender negotiations could often be a source of
corruption, it is directed that there should be no post-tender
negotiations with L-1, except in certain
exceptional situations.
Such exceptional situations would include, procurement of
proprietary items, items with limited sources of supply
and items where there is suspicion of a cartel formation.
The justification and details of such negotiations should be
duly recorded and documented without any loss of time.

Tender announcements from CPWD

Tender announcements from
NTPC

E-Procurement in Government of Andhra Pradesh.
(Case Study)
 The Govt. of AP has implemented many statewide e-
Government applications when the Central Government
enacted the IT Act of 2000 to provide legal recognition to
electronic transactions. As a consequence, GoAP has
set up an E-Procurement Marketplace, linking
government departments, agencies and local bodies with
their vendors.

Govt AP e-Procurement Architecture Diagram

E-Procurement at Govt of AP
 Main objectives of e-Procurement initiative are to:
reduce the time and cost of doing business for both
vendors and government; realize better value for money
spent through increased competition and the prevention
of cartel formation; standardize the procurement
processes across government departments/agencies;
increase buying power through demand aggregation;
provide a single-stop shop for all procurements; allow
equal opportunity to all vendors; bring transparency and
ultimately reduce corruption.

 Before introduction of an e-Procurement platform,
procurement in Government departments was carried
out through manual tendering process. Process
involved obtaining internal approval of project,
publishing a Notice Inviting Tenders (NIT) in
Newspapers, bid submissions (bulky volumes of paper)
by suppliers, bid evaluations by buyers, and finally,
awarding of procurement order and signing of
agreements.

E-Procurement at Govt of AP
 The complete process required a long
chain of internal authorizations and
scrutiny (at times involving several
departments), several visits by suppliers to
departments, and the generation of reams
of paper-based statements and
evaluations. The manual tender system
was suffering from following deficiencies:

E-Procurement in Government of Andhra Pradesh,
India
 Discrimination and delay in issue of tender
schedules to suppliers
 Cartel formation to suppress competition
 Physical threats to bidders
 Tender Boxes at Multiple locations
 Tampering of tender files
 Delays in finalization of tenders
 Human interface at every stage
 Lack of Transparency

India
 Severe shortcomings in manual tender system had an adverse
effect on the reputation of Government departments. Delays in
finalisation of suppliers for materials and services for government
projects had crippling impacts on the completion of projects and
delivery of services to the citizens. A cabinet sub- committee on
tender reforms instituted by GoAP in the year 2000 recommended e
creation of an e-Procurement market place.
 This would facilitate online tendering based on Internet technology
to provide ‘any where any time’ access to the bidders for
participating in tendering. This would also eliminate the non value
adding activities like manual sale of tender documents, manual
opening and reading of bids, preparation of comparative statements
(as they are automatically available), audit/cross check of
comparative statements, time spent in movement of files , manual
creation of purchase order and delivery schedule etc.

India
 The first challenge was to arrive at a sustainable business
model with proper implementation strategy. The GoAP considered
the following three alternative business models for implementation
of e-Procurement.
 Government owned – government operated
 Government owned – operated by a private operator
 Public Private Partnership model

India
 The second challenge was to ensure interdepartmental
coordination, as e-Procurement centralizes the processing of
tenders and touches several departments located in different parts
of the state. A high level Steering Committee (Project
Implementation Committee) chaired by the Chief Secretary of the
state, comprising of Secretaries, Heads of participating
departments and representatives of the private partner was formed
to promote coordination.
 The Steering Committee dealt with issues related to Business
Model, selection of private partner, interdepartmental coordination,
Business Process Reengineering and important issues in the
implementation of the project.
 The Information Technology and Communications Department of
the GoAP was made the nodal agency to oversee the
implementation of the project.

 Third challenge was Change Management as
implementation involved adoption of new ways of doing
things for a variety of stakeholders. Setting up the e-
Procurement exchange was not difficult in terms of its
technology components, but getting stakeholder buy-in
to adopt the platform was a big challenge.
 The various steps taken to manage Change with
different Stakeholders are enumerated below:

E-Procurement in Government of Andhra Pradesh
 Fourth challenge was resolving the security and authentication
issues of the platform. Stakeholders have to be completely
convinced that the transactions on the platform are secure. The
identity of the participating bidders, and the quotations that the
bidders make, are very sensitive information in the entire tendering
process.
 The e-Procurement solution was designed with extensive security
features to help ensure that all activities are logged, no
unauthorized person has access to data, all sensitive data is
encrypted, and that the system can be restored in a minimal time in
case of a disaster or system crash. A sound security policy for e-
Procurement has been implemented using the following features to
ensure security in the platform.

Security in E-Procurement
 Two-factor authentication
 Digital signatures to ensure non-repudiation
 Bid encryption at the database
 Online Antivirus scanning
 128 bit SSL encryption
 Audit trail of each activity
 Privilege-based user access
 Time stamping
 Firewall for screening system access
 Access control system
 Intrusion detection system (network and host)
 Regular back up of data
 Disaster recovery site

SSL128 bit encryption
 What is SSL 128 bit encryption?
 The 128-bit SSL (Secure Sockets Layer) gives you the
highest level of protection possible whenever you use
credit cards or make other financial or confidential
transactions over the Internet.
 The Internet Explorer 128-bit High Encryption is the
highest level of protection possible for all your Internet
communications, including credit card use and financial
transactions.
 High encryption is included in the latest versions of the
Internet Explorer browser..

India
Year No. of Departments /
agencies
Value of
transactions
completed $
(Million)
No. of transactions
processed
Percentage of
eProcurement
out of total
Government
spend
2003-04 8 447 564 20%
2004-05 7 Departments
9 PSUS
17 Municipalities
3,522 3746 80%
2005-06 8 Departments
13 PSUS
51 Municipalités
5 Universities
3,740 7931 90%

Benefits and Costs
 Reduction in tender cycle time: In the
pre e-Procurement era, the departments
used to take 90-135 days for finalization of
high value tenders. The tender cycle time
has gradually come down to an average of
42 days over a period of one year and
further reduced to 35 days at the end of
the second year.

E-Procurement in Government of Andhra Pradesh
 Cost Savings: One way to estimate cost savings is to
compare the percentage discount of Tendered Contract
Value over the Estimated Contract value for service
contracts awarded before and after the implementation
of the e-Procurement system.
 Tenders processed through the e-Procurement platform
in the pilot phase during 2003-04, the first year of the
initiative, yielded a reduction of 16% in the quotations
in comparison to the previous years when the
procurement was manual.

Year
Mode of
procurement
Tender Analysis
No of
tende
-rs
Estimated
Contract
Value in $
(Million)
Tendered
Contract
Value in $
(Million)
Percent
age
discount
2001-02 Conventional
Mode
188 177 166 - 2.65
Mode
125 126 115 -8.65
Mode
53 83 75 -9.00
2003-04 eProcurement
Mode
107 166 124 -25.00

SAP –Supply Chain Management
 SAP SCM is part of the SAP Business Suite, which gives
organizations the unique ability to perform their essential business
processes with modular software that is designed to work with other
SAP and non-SAP software. Organizations and departments in all
sectors can deploy SAP Business Suite software to address specific
business challenges on their own timelines and without costly
upgrades.
 SAP SCM can help transform a linear, sequential supply chain into a
responsive supply network – in which communities of customer-centric,
demand-driven companies share knowledge, intelligently
adapt to changing market conditions, and proactively respond to
shorter, less predictable life cycles.
 SAP is used by 125000 companies in the world including FORTUNE
500 companies and companies like ONGC,HUL,SAIL,BHEL,Tata
Motors, Tata Steel etc

SAP-SCM
 SAP SCM provides broad functionality for
enabling responsive supply networks and
integrates seamlessly with both SAP and non-
SAP software. The application:
 Delivers planning and execution functions that are
integrated by design
 Supports best practices and provides preconfigured
software for enabling collaborative business,
accelerating implementation, and reducing costs
 Is recognized by key industry analysts as the market-leading
SCM application

References
 Member,Railway Board, Ministry of Railways, Govt. of India
 DGS&D, Ministry of Commerce, Govt. of India
 Construction Development Council / Planning Commission Surveys
 Govt. of Andhra Pradesh (E-Procurement Case Study)
 BHEL
 EIL
 NTPC
 CPWD
 PWD/DDA
 MES
 SAIL
 Intergraph, JCB, Tata Hitachi ,BHEL, Fanuc CNC, Tata Motors ,HAL
 NHAI
 Wikipedia
 Manager, e-Procurement, P. RamaRaju, Chief Engineer, Irrigation Deptt., Govt of Andhra Pradesh
 ICAI – Chartered Accountant
 Total Project Management, P.K.Joy, Macmillan Publishers
 Jupiter Research Survey
 Economics Times / Hindustan Times
 SAP, Germany
 CVC website
 CAG Report on CWG
 Law Commission
 Michael Porter’s Five Forces Model

Thank You
 Thanks to all participants in the MDP
Program on” SCM, Procurement & E-Procurement”
session.
Affiliation(s)
Thanks to Mr. Mayur Sharma,PA for preparation of this PPT.

Cut costs using Modern Supply Chain Management practices !

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (10)

Ähnlich wie Cut costs using Modern Supply Chain Management practices !

Ähnlich wie Cut costs using Modern Supply Chain Management practices ! (20)

Mehr von sanjeeev bahadur, m.tech,mba

Mehr von sanjeeev bahadur, m.tech,mba (15)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Cut costs using Modern Supply Chain Management practices !