The document discusses optimization of cost and vendor selection strategies for L&T-MHPS Boilers Private Limited. It outlines challenges such as lack of transparency and cartelization. New strategies are proposed, including analytical hierarchy process for vendor selection and revised metrics for delivery performance, quality, reliability, and financial health. Implementation focuses on dividing packages into categories based on criticality and type. Recommendations include continuous data review, streamlining comparison sheets, and developing a common online platform for vendors.

1. Optimization Between
Cost Reduction & Vendor Selection
in SCM
Presented by : Prashant Rajpoot
Date: Jan 28, 2019

2. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
INDEX
 OBJECTIVE
 INDIAN POWER SECTOR
 ABOUT L&T-MHPS BOILERS PVT LTD
 SUPPLY CHAIN MANAGEMENT
 CHALLENGES FACED
 STRATEGY TO COUNTER
 IMPLEMENTATION PLAN
 RECOMMENDATIONS
 WORK IN PROGRESS

3. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
OBJECTIVE
 LMB’s Goal of right pricing strategy & reduction in delivery
schedule in todays competitive scenario .
 Focus on supply chain in business processes :
 Better cost saving.
 Developing optimized ordering strategy for packages.
 Developing module for evaluating vendors & right vendor
selection

4. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
INDIAN POWER SECTOR
196,097
24,867
837
45,487
6,780
70,648
Fuel wise (MW)
Coal Gas
Oil Hydro
Nuclear Renewable energy
0.3%
8.1%
14.1%
61.4%
1.9%
14.1%
(Source: CEA)
Oct. 30, 2018
Capacity Addition Projections (figures in MW)
5 year Plan Planned Thru Coal
11th (2007-2012) 68,869 46,635
12th (2012-2017) 76,000 63,000
13th (2017-2022) 93,400 63,400
Report of The Working Groupon Power for 11th & 12th five year plans.
Existing Capacity : 344,716 MW

5. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
LMBMHPS
L&T-MHPS Boilers Pvt. Ltd.
L&T
51% 49%
Larsen &
Toubro,
India
Mitsubishi
Hitachi Power
System, Japan
L&T-MHPS
Boilers, India
Incorporation
L&T-MHPS Boilers was
incorporated on
April 18, 2007
(20 Years Term)
Scope
Complete Technology
Transfer of Supercritical
Boilers
Product Range
Supercritical Boilers of
500 MW and above
including Pulverizer
Jaypee
Nigrie
2x660
MW
Maha
Genco
Koradi
3x660
MW
Nabha
Power
Rajpur
a
2x700
MW
RRVUN
L.
Chhabr
a
2x660
MW
MPPG
CL
Khand
wa
2X660
MW
NTPC,
Tanda
2X660
MW
NTPC
Khargo
ne
2X660
MW
NUPPL
Ghatam
pur
3x660
MW

6. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
L&T-MHPS Boilers Pvt. Ltd.
Signed with
MHPS for Boilers
Term
20 years
Exclusive
In India
Non Exclusive
Outside India
License and Technical
Assistance Agreement
For doing business outside
India
LMB requires prior written consent of
MHPS
Upon MHPS request, LMB can sell its
products to MHPS
Manufacturing Facility at Hazira, Gujarat
Product Range
Boiler & Auxiliaries Package Pressure Part Windbox Pulverisers

7. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
L&T-MHPS
Boilers Process
Flow
Site
Engineering
SUPPLY CHAIN MANAGEMENT
Standard Urgent
Requirement
Project Based
Requirement
To manage
inventory &
Effective
Deployment
Combination of
methods &
sources to take
decision
InternalFocusExternalFocus
Short Term Long Term
PURCHASING PROCUREMENT
LOGISTICS & IM STRATEGIC
SOURCING

8. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
CHALLENGES FACED
1. Savings Achieved
2. Transparency in
finalization
3. Vendors are
evaluated yearly &
based on performance,
future ordering is
decided
1. Prone to Cartelization
2. More prone to
delivery failure
3. Ordering only on
basis on L1 philosophy
1. Revisiting Evaluation
philosophy
2. Developing Strategic
thinking
1. Savings might not be
achieved
2. Lead time for
finalization of package
may increase
STRENGTHS WEAKNESSES
OPPURTUNITIES THREATS
Case Example
Vendor : Passive Infra
2010 : Introduction of Vendor in LMB
2012 : Most preferred Vendor
2013 : Executed 3600 MT on time &
Order booking of 2600 till 2016
2016 : 1000 MT backlog
WHAT WENT WRONG
?
SWOT of Current Ordering Process

9. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
STRATEGY for Opportunities
Analytical Hierarchy Process (AHP)
Decomposing Decision problem into a
hierarchy
Vendor
Selection
Criteria
Cost
Fixed
Variable
Quality
Product
Manufacturi
ng
Delivery
Timeliness
Lead Time
Location
Reliability
Responsive
ness
Facility &
Capacity
Financial

10. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Delivery Performance Rating
Existing Process Revised Process
Delivery performance
Ratings (DPR)
QTY Supplied within CDD
QTY Supplied After CDD x
0.5
V : Values In INR
Total Quantity Supplied
Calculation of MF NO of days delay
% age
completion
balance
compared to
total supply
<30 <60 <90 <120
<25 0.94 0.86 0.78 0.70
26-50 0.90 0.82 0.74 0.66
51-75 0.86 0.78 0.70 0.62
DPR 1 =V(0-29) x MF1 + V(30-59) x MF2 + V(60-89) x MF3 + -------
DPR % = (DPR 1 + Sum Of Invoice within CDD) / Total Invoice Value

11. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Quality Performance Rating
Existing Process Revised Process
Quality performance
Ratings (QPR)
• A formula governed by
Non Conformity Report
(NCR)
• Not Covering criticality
of NCR
• Not Covering Subjective
aspects
QPR %
70 % x Analytical
Aspect
30 % x Subjective
Aspect
• A multiplication factor governed by criticality of NCR
• For Subjective aspect, a rating is given on a scale of 100
based on 20 questions .

12. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Vendor Rating
Existing Process Revised Process
Vendor Rating %
50 % x DPR
50 % x QPR
Vendor Rating % 40 % x DPR 40 % x QPR
20 % x Reliability Factor
• Vendor After Sale services, Effectiveness to follow LMB
procedures, Detention Charges frequency, Financial
Reconciliations

13. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Financial Health
7 WONDERS OF FINANCE Z Score 1.2X1 1.4X2 3.3X3 0.6X4 1.0X5
Five Performance Ratios Combined into One Score
X1 = Working Capital / Total Assets
X2 = Retained Earnings / Total Assets
X3 = EBIT / Total Assets
X4 = Market value of Equity / Book value of Total Liabilities
X5 = Sales / Total Assets
SAFE ZONE GREY ZONE DISTRESS
ZONE
3.0 1.8

14. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
COST Portion
Fixed Variable
Cost provided by vendor
after final negotiation
Modes of Negotiation
1) Direct Negotiation
2) Reverse Auction
Cost of SCM Intervention Cost of Quality Intervention
Expected QC Man-days
PER Day Cost
Factor based on QPR
Expected SCM Man-days
PER Day Cost
Factor based on DPR
Values In INR

15. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
% Contribution
By Value =
2.41%
By No of Pkg =
13.95 %
% Contribution
By Value =
33.12%
By No of Pkg =
16.28%% Contribution
By Value =
16.50 %
By No of Pkg =
55.23 %
% Contribution
By Value
= 47.96 %
By No of Pkg =
14.53 %
StandardItem
NonStandard
Item
Less Critical Very Critical
IMPLEMENTATION
Total Packages in Boiler - 172 Nos
Total Value – 820 Cr.
Packages were divided into 04 Categories
based on Criticality & Category of Item.
CategoryOfItem
Criticality of Item
• Quadrant II & IV – Major Focus
• Best practices to be followed

16. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
% Contribution
By Value =
2.41%
By No of Pkg =
13.95 %
% Contribution
By Value =
33.12%
By No of Pkg =
16.28%% Contribution
By Value =
16.50 %
By No of Pkg =
55.23 %
% Contribution
By Value
= 47.96 %
By No of Pkg =
14.53 %
StandardItem
NonStandard
Item
Less Critical Very Critical
IMPLEMENTATION
CategoryOfItem
Criticality of Item
17%
21%
16%
23%
23%
Percentage Satisfaction
Availability of
channels/forums/opportunities
Response from LMB to the ideas
communicated by you
Approachability to LMB divisions
Quality improvement initiative
Proactiveness of LMB in reaching
out with performance
improvement ideas

17. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Recommendations
Continuous study and review of historic data for better order finalization accuracy.
Performance evaluation by identified individual & availability of value on server for buyer’s
further usage.
Streamlining Comparison Sheet to make it more amenable for evaluation
Development of common platform accessible to vendors for credentials input & vendor
registration.

18. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019
Work in Progress
• Online modules for models under approval.
• Incorporation of variable cost component in comparison sheet
• Testing of prototype for online vendor registration module.
• Approval of Standard Operating Procedures for DPR & Vendor
Ratings.

19. “Vendor Management & Cost Optimization for L&T‐MHPS Boilers Private Limited” Presented by : Prashant Rajpoot Jan 28, 2019