gives an overview of financial supply chain management of coal company

1. “INTEGRATED FINANCIAL
SUPPLY CHAIN
MANAGEMENT”
FOR A COAL MINE
-By Sanjeev Kumar

2. SOME FACTS ABOUT COAL IN INDIA

5. STRUCTURE OF INDIA’S COAL
SECTOR

6. TYPES OF COAL

7. PHYSICAL SCM vs FINANCIAL SCM
• What to buy?
• When to buy
• How much to buy?
• From whom to buy?
• What and how to pay?
• When to pay?
• How much to pay?
• Who to pay?

8. WHAT IS SUPPLY CHAIN
MANAGEMENT OF COAL
COMPANY?Supply chain
management is
the handling of
the entire
production flow
of a good or
service —
starting from
the raw
components all
the way to
delivering the
final product to
the consumer.

9. PHYSICAL AND FINANCIAL SUPPLY
CHAINS IN A COAL COMPANY ACROSS
A TRANSACTION

10. FUNCTIONAL PERSPECTIVE OF
FINANCIAL
SUPPLY CHAIN COLLABORATION

11. FINANCIAL SUPPLY CHAIN
MANAGEMENT OF COAL COMPANY
The Financial Supply Chain refers to the end-to-end trade processes
and information that drive a company’s cash, accounts, and working
capital.
The FSCM of coal company is made up of three components:
 the procure-to-pay cycle,
 working capital management, and
 the order-to-cash cycle.
In addition to the focus on the financial information flow in these
processes, it also considers the needs and behaviors of departments
(and their employees) in the organization. For instance, sales trends
may be influenced by offering employee bonuses, changes in
department heads, unexpected resignations, and scheduling delays.

12. 1. PROCURE-TO-PAY CYCLE
The P2P cycle is the trade cycle as seen from the point of
view of the company that’s buying materials, goods, or
services. During this process, the company chooses, receives,
and pays for the items required to produce the goods or
services they supply to their customers.

13. In fact, the P2P process itself can be broken into three primary
phases, set in a repeating loop that, ideally speaking, improves with
every iteration:
The Purchase Order
Process
The Receiving Process The Invoice Approval
Process
Purchase requisitions
are created and
approved.
Goods and services
are received or
executed.
Invoices are received.
Vendors are evaluated
and selected.
For goods, receiving
documents are
reviewed and logged.
Invoices are
reconciled and cross-
checked with the
original PO and
receiving documents
(three-way matching).
Purchase orders are
issued for the
required goods and
services.
Errors are recorded
and corrected.
Approved invoices are
paid.

14. Having explored the connection between the primary phases, let’s
take a closer look at the P2P process, start to finish:

15. I. REQUISITION ORDER PLACED
Requisition orders are a formal request for goods or services. In cases
where every item can be defined in advance, most requisitions are
defined and built in to the procurement plan. Even the most carefully
defined plans, however, can need additional materials due to
spoilage, unforeseen events, scope creep from clients, or new ideas
to make improvements on the original plan. Well-crafted
procurement plan budgets have a cushion built in for just such
circumstances, and requisition orders can be submitted later in the
process if necessary.

16. II. VENDOR SELECTION
For new orders, the vendor selection process may need to be brought into
play. Working from a short list of vendors, the procurement department
sends a request for proposal (RFP) outlining the requirements.
Suppliers return a bid on the job, detailing turnaround time, price, and
pertinent material specifications.
During the process of choosing suppliers, negotiations take place. In
addition to quality, cost and delivery schedules, the procurement
department will explore potential advantages such as:
• Year-over-year price reduction
• Quantity discounts
• Future improvement in quality
• Freight and insurance costs

17. III. PURCHASE ORDER (PO) ISSUED
Once the requisition order is approved, a detailed order form with
amounts and delivery requirements is submitted. The PO is sent to
the appropriate vendor for fulfillment.
IV. RECEIVING DOCUMENTS
LOGGED
The vendor delivers the goods or services and the relevant receiving
document is entered, with line items verified to ensure that
everything ordered is delivered.

18. V. INVOICE RECEIVED
The vendor submits an invoice, which is entered into the system.
Automated systems often support electronic invoicing (e-Invoicing)
through the use of vendor portals.
VI. INVOICE RECONCILIATION
The invoice is reconciled against the PO and relevant documents from
the receiving process. In automated systems, the three-way matching
process compares the purchase order and receiving document with
the invoice to confirm that the goods were delivered as ordered and
billed accordingly. Line items that do not match are flagged and
reported for investigation.

19. VII. ACCOUNTS PAYABLE
Invoices approved for payment are routed to AP. Payments are made,
and the accounting system is updated.

20. 2. ORDER TO CASH?
The order-to-cash, also known as the O2C or OTC, process, refers to
a company’s business process for the entire order processing system.
This is a set of business processes to manage from sales order right
through to customer payments. It helps define your success as a
company and your relationships with customers. Optimizing this
process eliminates inefficiencies and can produce benefits seen
throughout the entire business.

21. STEPS IN THE O2C PROCESS
Step One: Customer Places an Order
Step Two: Order is Fulfilled
Step Three: Order is Shipped
Step Three: Invoice Created and Sent to Customer
Step Four: Customer Pays Invoice
Step Five: Payment is Recorded in General Ledger

22. 3. WORKING CAPITAL
MANAGEMENT
Basically there are three main components of WCM in coal company.
Money coming in i.e.
Accounts Receivable
Money going out i.e.
Accounts Payable
And The
management of
inventory.

23. I. ACCOUNTS RECEIVABLE
Accounts receivable are revenues due—what customers and debtors owe to a
company for past sales. A company must collect its receivables in a timely
manner so that it can use those funds to meet its own debts and operational
costs. Accounts receivable appear as assets on a company's balance sheet, but
they do not become assets until they are collected. Days sales outstanding is a
metric used by analysts to assess a company's handling of accounts receivables.
The metric reveals the average number of days a company takes to collect sales
revenues.

24. II. ACCOUNTS PAYABLE
Accounts payable is the amount that a company must pay out over
the short term and is a key component of
working capital management. Companies endeavor to balance
payments with receivables to maintain maximum cash flow.
Companies may delay payments as long as is reasonably possible
with the goal of maintaining positive credit ratings while sustaining
good relationships with suppliers and creditors. Ideally, a company's
average time to collect receivables is significantly shorter than its
average time to settle payables.

25. II. INVENTORY
Inventory is a company's primary asset that it converts into sales
revenues. The rate at which a company sells and replenishes its
inventory is a measure of its success. Investors also consider the
inventory turnover rate to be an indication of the strength of sales
and how efficient the company is in its purchasing and
manufacturing. Low inventory means that the company is in danger
of losing out on sales, but excessively high inventory levels could be
a sign of wasteful use of working capital.

26. WORKING CAPITAL MANAGEMENT
IN A NUTSHELL
Working capital management represents the relationship between a
firm's short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that a company can afford
its day-to-day operating expenses while, at the same time, investing
the company's assets in the most productive way. A well-run firm
manages its short-term debt and current and future operational
expenses through its management of working capital, the
components of which are inventories, accounts receivable, accounts
payable, and cash.

27. DEBTORS MANAGEMENT IN CCL
l. Cash basis:
• Sells coal to private parties like TISCO, IISCO.
• Only 10% cash received.
ll. Credit basis:
• 90% coal is sold on this basis.
• Only for government parties.
• Power sectors: DVC, JSEB, PSEB, HSEB, UPRVUNL.
• Steel sectors: SAIL, BSP, BSL, RSP, DSP.
• Other sectors: defense, cement, fertilizer.

28. PROBLEMS FACED BY CCL IN DUES
PAYMENT
SYSTEM
Quantity problems
• Difference in goods quantity supplied by CCL and received by the
party.
Quality problems
• CCL supplies C, D, E grade of coal in various industries.
• Party’s blame- it received E grade coal while CCL supplied D grade
coal.
Others
• Moisture
• Stowing

29. THE END