project updated 1

REDUCING THE LEAD TIME DURING THE PROCUREMENT
PROCESS OF TATA STEEL COMPANY
A PROJECT REPORT
Submitted by
SUSHMITA GHOSH
In partial fulfilment for the award of degree
of
POST GRADUATE DIPLOMA OF MANAGEMENT
In
OPERATIONS
AT
INSTITUTE FOR FUTURE EDUCATION, ENTREPRENEURSHIP AND
LEADERSHIP
Off Karla Phata, Ekveera DeviGramasthan Road, Gut No- 178, Village-Karla, Taluka-
Maval, Dist- Pune, India.
July 2014

INSTITUTE FOR FUTURE EDUCATION,
ENTREPRENEURSHIP AND LEADERSHIP
BONAFIDE CERTIFICATE
Certified that this project report “REDUCING THE LEAD TIME DURING
THE PROCUREMENT PROCESS OF A COMPANY” the bonafide work of
“SUSHMITA GHOSH” who carried out the project work under my supervision.
Prof. Sachin Modgil Wing Commander Sudhir Salunkhe
ACADEMIC SUPRIVISOR DEAN
Prof. Sachin Modgil
COURSE CORDINATOR

CONTENTS
 ABSTRACT......................................................................................................................5
 ACKNOWLEDGEMENT....................................................................................................6
 INTRODUCTION..............................................................................................................7
 PROJECT STRUCTURE.....................................................................................................8
 WORK FLOW OF CURRENT PROCUREMENT PROCESS...................................................9
 TIME STUDY OF CURRENT PROCUREMENT PROCESS..................................................11
 STATISTICAL ANALYSIS FOR REDUCING THE LEAD TIME.............................................18
 ROLE OF STRATEGIC SOURCING IN REDUCING THE LEAD TIME..................................34
 IMPACT OF REDUCING THE LEAD TIME BENEFITING THE ORGANISATION.................38
 SIGNIFICANCE OF REDUCING THE LEAD TIME FOR A COMPANY................................42
 STANTARD CLAUSES FOR SUPPLY OF EQUIPMENTS....................................................46
 STANDARD CLAUSES FOR SITE SERVICES.....................................................................52
 CONCLUSION...............................................................................................................59
SUMMER INTERNSHIP PROJECT 2014 4

ABSTRACT
The projectmainlydealswiththe initiativeof reducingthe leadtime duringthe procurementprocess
for the progressof the company.Procurementandthe purchasing management is actually the most
time consumingprocedure inthe whole supplychainwherethere isahuge scope to reduce the lead
time andtotal cost eliminatingthe complexitiesderivedfromthe process.Reductioninprocurement
can strategize the overall working process which could help to rebuild new improved beneficial
programs involving a growth perspective. There are a number of non value added activities and
complexities forwhichthere are even different effective measures to address it. Strategic sourcing
also has played an important role to analyse and address the challenges and overcome it in an
effective way. Therefore, the results can be immense and leads an organisation to achieve a
competitive advantage in the market place.
SUMMER INTERNSHIP PROJECT 2014
5

ACKNOWLEDGEMENT
A summer internship project plays a very important role in a fresher’s career. I consider
myself to be the luckiest person to get a golden opportunity to carry on my summer
internship in the most renowned organization, Tata Steel Company, Jamshedpur.
This project has immensely contributed to self development and
knowledge. Therefore, I wish to express my deepest sense of gratitude to Mr. Neeraj Jha,
Senior Manager of the Engineering Department, who in spite of being so busy in his daily
schedule, has contributed and given most of his time and taken keen interest in guiding
and getting me on the correct path throughout the whole project scenario.
I would even like to thank Mr. C P Sharan, Senior Project Manager of the
engineering Department, along with the collaboration of Mr. Shailendra Kr. Yadav,
Manager of Planning and Budgeting who had been making me aware of the difficult
technical terms and of the company’s working schedule.
Moreover, it was so great to have such wonderful people around helping me
throughout the whole journey of my project.
Last but not the least, I would like to thank Tata Steel Company for
providing me this wonderful opportunity to learn and grow.
Date: 15.7.2014 Sushmita Ghosh PGDM(2013-2015)
Place: Jamshedpur Ifeel Management Education

INTRODUCTION
One of the most important and efficient way to achieve a competitive edge for a company is
reduction of lead time. Reducing lead time period between the initiation of a production of a
new product or an up gradation of an existing product up till the product has fully been
manufactured to be transported. It would not only help to reduce the wastage of time and
resources but also ensures improved quality and delivery at a proper stipulated time period
involving the value added activities.
There are mainly two types of lead times, procurement lead time and manufacturing
lead time.
Procurement process is mainly based on competitive bidding to select the lower
bidding supplier. This process further includes fierce bargaining where the purchaser tries to
bargain and convince the suppliers to adopt a similar strategy in a very low reasonable price.
The Commercial discussion and price negotiation takes a huge amount of time to process
until the time of the placement of purchase order which adds to the greatest areas for
further improvement
There has been observed a traditional approach for the delivery of the project
focussing upon the transformation concept of production or converting specifications to
products, without the consideration of work flow and value concepts, which actually needs a
much wider approach.
This project will mainly deal with the proper understanding of the general
procedure carrying out the procurement, planning and scheduling areas of the company and
the study of the various aspects and scopes needed to reduce costs and variability in the
process. Moreover, lead time reduction appears to benefit all members of supply chains, but
yet, why are we not able to radically reduce it?
7

PROJECT STRUCTURE
Part A: Mapping of the currentprocesses and their efficiency levels.
Purpose–
1.) To study the current procurement process in a flowchart form in brief.
2.) To study the general terms and condition of the procurement process.
3.) To study how strategic sourcing can be a great help in the whole procurement process for
reducing the lead time.
Part B: Study of most time consuming processes and their impact over the
production.
Purpose:
1.) To study which is the most time consuming process in the whole Project Procurement
process.
2.) To study the main causes of long lead time.
3.) To study the significance of reducing the lead time for a company.
4.) To study the effective measures for reducing the lead time during the procurement
process.
5.) To study the impact of reducing the lead time over the procurement process for a
company.
6.) To calculate the chi square test for the observed and expected values received and activity
based costing for getting the overall time and cost consumption.

WORK FLOW OF CURRENT PROCUREMENT PROCESS
Prepare Requirement Of Common Consumption Items For Growth Projects.
Projects Through MRO/M Junction/ Project Procurement As The Case May Be.
Linkage MRO Process( Other Dept of Tata Steel)
Receives Final VendorPanel And Reviews If Needed
Issuance OfEnquiry(IssuanceOfEnquiryBy ConsultantForGrowthProject)
Receipts OfBids
Commercial Discussions And Price Negotiation And Finalisation Of Terms And
Conditions
Offer Complete And Acceptable w.r.t Technical And Commercial
Aspects
Final Price NegotiationByProject Procurement And Project Manager WithVendor
Release PR In System
Check And Release Order In System(SendCopy Of Order To The Vendor)
9

Acknowledge Receipt Of PO And Seek Clarification(if in case of foreign
orders)
Furnish Clarification
10

TIME STUDY OF THE CURRENT PROCUREMENT
PROCESS
To map the efficiency of the current procurement practise, it was very necessary for me to do a time
studyto analyse howmuchtime isactuallyconsumedbyeachprocessstepby step and which is the most
time consuming process, i.e., the conceptualisation & Preparation of specifications, issuance of bids,
receiptsof bids,Commercial discussionandnegotiationprocess,andfinal price negotiationbythe project
procurement.
 CONCEPTUALISATION AND REVIEW OF COMMON CONSUMPTION ITEMS:
The initiation process of project procurement is the procuring the
common consumption items reviewing the requirements of materials for further usage
purposes.The processisformerlyknownasconceptualisationandpreparationof specification.
Conceptualisationtherefore,includes implementation strategy, packaging for ordering, PERT
charts, reviewmechanismwhichisfurtherprecededbythe preparationandreview of techno-
commercial specifications and finalisation of list of vendor. Thus, the whole process of
procuringconsumptiontechniquesanditems including PERT charts, implementation strategy
and techno-commercial specifications layout drawings takes around 30 days for processing.
 ISSUANCE OF ENQUIRY:
The next process involves the issuance of the enquiry. Enquiry is
issuedalongwiththe Technical andcommercial specificationstovendors.Vendorsare advised
to submit their bids by a specified time. Issuance of enquiry takes around 10 days for
processing.
 RECEIPTS OF BIDS:
The third process was the receipts of bids.

Afterthe issuance of enquiryismade,requestforthe submissionof bidsis allowed along with
the approval of Project Manager. This request consists of some estimated time period which
can be 15 days. In case the number of bids submitted are not adequate, then the date is
extendedpanel of vendorsisincreasedafterdue assessment.This is done without opening of
the price bid.
 COMMERCIAL DISCUSSION AND PRICE NEGOTIATION:
After the bids are evaluated, technical and commercial offers are
scrutinized and list of deviation are prepared. These vendors are thus called for discussions
uponthe listof deviationsandconvince the supplierstoadoptasimilarconvenient strategy as
perspecificationsandrequirementsof the company.Vendorssubmitting the bids are opened
and evaluated by the Project Manager.
 OFFER COMPLETE AND ACCEPTABLE (TECHNICAL AND COMMERCIAL ASPECTS):
After the bids are properly examined by the Project
Procurement, the list of deviations are being discussed and negotiated. Price bids are then
openedonlyafterthe finalisationof all technical scope and commercial terms and conditions.
Price offersare thenforwardedtoProjectManagerfor evaluation.Thisprocesstakesaround 3
days for processing.
 FINAL PRICE NEGOTIATION BY PROJECT PROCUREMENT AND PROJECT
MANAGER WITH VENDOR:
The tabulation of bids is prepared and vendors are called for
discussion and price negotiation of prices if required.
The process of negotiation is carried out till the
reasonablyacceptable price isachievedwhichisbeingledbyProjectProcurement. Thus, the
negotiation process takes around 7 days for processing.

 RELEASE PR IN SYSTEM:
After the unique material code (UMC) is centrally
created in the Lotus Notes at Planning and Budgeting Department, the draft purchase
requisition (PR) is created in the SAP system by the consultant. The draft PR is checked and
approved by the Project Manager for release by Project Manager for release by Project
Procurementinthe systemtofacilitate creationof purchase order.Thisprocesstakesaround
2 days to process.
 CHECK AND RELEASE ORDER IN SYSTEM:
Draft order is properly checked by the project
procurement along with the checklist and the documents. After incorporating necessary
corrections, order shall be released in the system. This process takes around only 1 day to
process.
 ACKNOWLEDGE RECEIPTS OF PO AND SEEK CLARIFICATION:
Draft agreement for foreign collaboration is
handedoverto the perspectivesupplierpriortostarting commercial discussions. Deviation in
termsand conditionsasrequestedbythe vendorisdiscussedwithlegal, finance and accounts
and in head office, Mumbai which are signed by the representative of contractor.
 FURNISH CLARIFICATION:
On the receipt of sanction, final agreements are
printedonstamp paper and executed by the appropriate authorized signing authority by the
purchaser and the vendor with Power of Attorney.
13

 PLACEMENT OF PURCHASE ORDER:
The agreement is then followed by orders
released through SAP system.
In case the agreementcoversforeignsupply,indigenoussupply, supply of designs
and drawings,supervision services, site work involving erection, testing and commissioning,
separate orders are released in SAP system.
14

The followingisthe chartrepresentingthe activitiesinvolvedinthe ProjectProcurement Process:
ACTIVITIES INVOLVED TIME CONSUMED
(IN TERMS OF DAYS)
1. Conceptualisation&PreparationOf Specifications 30
2. Issuance Of Enquiry 10
3. ReceiptsOf Bids 15
4. Commercial Discussion&Price Negotiation 20
5. OfferComplete &Acceptablew.r.t.Techno-commercial aspects 03
6. Final Price NegotiationByProjectManagerWithSupplier 07
7. Release PRInSystem 02
8. Check& Release OrderInSystem 01
9. AcknowledgeReceiptsOf PO&SeekClarification 01
10. FurnishClarification 02
11. PlacementOf Purchase Order 02
15

The following is the pie chart representation of the whole project procurement process:
32%
11%
16%
22%
3%
8%
2% 1% 1%
2% 2%
1 Conceptualisation & preparation of specification.
2 Issuance Of Enquiry
3 Receipts Of Bids
4 Commercial Disussion And Price Negotiation
5 Offer Complete And Acceptable w.r.t. Technical And Commercial Aspects
6 Final Price Negotiation By Project Procurement And Project Manager With Vendor
7 Release PR in System
8 Check And Release Order In System
9 Acknowledge Receipts Of PO And Seek Clarification
10 Furnish Clarification
11 Placement of Purchase Order
16

From the above data,I foundthat the firstprocesswhichisthe conceptualisation&preparation of
specifications, the forth process which is the Commercial discussion and Price Negotiation and the
sixth process which is the Final Price Negotiation by Project Procurement Process is the most time
consuming process.
Therefore, the pie chart representation of the most time consuming processes are:
36%
12%
18%
24%
8% 2%
Conceptualisation & Preparation Of Specifications
Issuance Of Enquiry
Receipts Of Bids
Commercial Discussion & Price Negotiation
Final Price Negotiation By Project Procurement And Project Manager With
Vendor
Placement Of Purchase Order
17

STATISTICAL ANALYSIS FOR REDUCING THE LEAD
TIME
Procurementactivitiescanleadto significantsavingsandanumberof otherbenefits.Therefore,the savings
and benefitscanbe measuredinvolvingastatistical tool whichcanleadtolowerriskandlowerexpenditure.
Therefore,thiscanleadtolowerriskandlowerexpenditure.The measuringprocesses,thus,are brokendown
intothe followingsteps:
 SCOPE OF THE PROCUREMENT ACTIVITY:
The firststepincludesall the costcomponentsthat Q
11 1couldbe the cost driversinfluencingthe overall budget.Itshouldbe evenkeptin
mindthat the cost of any additional productsorservicescannotbe offsettingthe agreedcost
reductions.Thisincludesall the technical andcommercial specifications,drawingsanddesigns,
documentbatches,addedvalue orservice products,the budgetallocationof the suppliers,etc.
It mustbe keptinmindthat there shouldbe anoptimumutilisationof the resources
maintainingassetstandardisationatpossiblylow reasonableprice.
 DEFINE THE COMPARISON UNITS:
The calculationof the savingsorbenefitsof the
procurementactivitycanbe determinedbycomparingthe presentorthe currentcosts with
the predictedcosts.
 BASELINE THE CURRENT COSTS:
It isveryimportantto considerall the majorcostsassociatedwith
productsor services.Thisincludesadetailedanalysisof the overalltotal costof ownership.
Capital and operational costsare the maincriteriaof focuswhile
assessingthe baseline costs.The above twocriteriawouldincludethe following:

1) Raw Material Consumption,
2) DocumentVolumes,
3) HighBiddingPrice Expenditure,
4) Cost AndQuantityUndertaken,
5) Tax FluctuationsCenvatBenefitsByThe Suppliers,
6) Final BiddingPrice NegotiatedWithThe Suppliers,
7) No Of Change OrdersMade WithinThe Process,
8) Cost PerEmployee Basis,
9) Cost PerUnit Area,
10) Size Of The Project,
 PREDICT THE FUTURE COST:
Here,the mainthingsrequiredtoencounterwill be primarilythe
followingpoints:
1) NewComponentsInvolved,
2) HigherOr LowerValue ProductOr Service,
3) DifferentConsumptionLevels,
4) NewBrand/Product/ service,
5) Factors Of Cost InflationEffectOnThe Total ProjectCosts,
6) No.Of Manpower,
7) AnyDiscountedRatesthroughAggregationof Companies.
These factors can be well
estimatedandmade a useful scope for plottingoutthe difference between the present or
previous budgetary plan and give a glimpse of how to process and proceed a new
budgetary plan for an upcoming project.
 COMPARE THE BASELINE WITH THE PREDICTED COSTS:
The final processisthe comparisonof the
baseline costswiththe predictedcosts.

This notonlywouldhelptofindoutsolutionstodevelopawell defined business strategy but
alsobenefitthe organisationtoselectasupplierforamultiple year agreement based on their
superiormanufacturingcapabilities and local presence with respect to have a wishful growth
in the business processes and meet a cost competitive advantage over the others.
Therefore,thismustinclude the capital andsome of the operational
expenditure alongwiththe predictionof furthernew implementation.
Here, in the case of crude steel, crude steel production has the best ever
sales of 7.48 million tonnes for the year 2012-2013.It would be appropriate to analyse the
whole procurement processes with the help of CHI SQUARE TEST as follows:
TIME ESTIMATION: CHI SQUARE ANALYSIS
ActivitiesInvolved Observed
Time
Expected
Time
(O-E) (O-E)^2 (O-E)^2/E Percentage
Change
Conceptualisation& preparation of
specification.
60 30 30 900 30 2%
Issuance Of Enquiry 40 10 30 900 90 4%
ReceiptsOf Bids 30 15 15 225 15 3%
Commercial DiscussionAnd Price
Negotiation
40 20 20 400 20 2%
OfferComplete AndAcceptable
w.r.t. Technical And Commercial
Aspects
8 4 4 16 4 2%
Final Price NegotiationBy Project
ProcurementAnd Project Manager
WithVendor
9 7 2 4 0.5714 1.2%
Release PR in System 8 4 4 16 4 2%
Check AndRelease Order In System 7 5 2 4 0.8 1.4%
Acknowledge ReceiptsOfPO And
SeekClarification
7 5 2 4 0.8 1.4%
FurnishClarification 4 2 2 4 2 2%
Placementof Purchase Order 4 2 2 4 2 2%
Total 169.1714286 23%
20

20% over time is utilised which is indirectly the cost to the company. Majorly time spent upon
issuance of enquiry(4%) followedbythe receiptof bids(3%) andcommercial discussion(2%) which
can be possibly reduced. Reduce the time duration of receipt of bids by reducing the cycle time.
The graphical representationof the chi square analysisof the time estimationisas
follows:
Conceptualisation & preparation of specification.
Issuance Of Enquiry
Receipts Of Bids
Commercial Disussion And Price Negotiation
Offer Complete And Acceptable w.r.t. Technical And Commercial Aspects
Final Price Negotiation By Project Procurement And Project Manager With Vendor
Release PR in System
Check And Release Order In System
Acknowledge Receipts Of PO And Seek Clarification
Furnish Clarification
Placement of Purchase Order
21

Degree of freedom=n-1=11-1=10
Here,there isa significantdifference betweenthe observedandthe
expectedvalue,so null hypothesiswillbe rejected.
 COST ESTIMATION: CHI SQUARE ANALYSIS
ActivitiesInvolved Observed Expected (O-E) (O-E)^2 (O-E)^2/E Percentage
Change
Sales 7.48 8.33 -0.85 0.7225 0.086734694 0.89%
Capital 3.96 4.4 -0.44 0.1936 0.044 0.9%
Recurring 55.77 56.35 -0.58 0.3364 0.005969831 0.98%
Excise Duty 4118 3196 922 850084 265.9837297 1.28%
Raw Material Consumption 9877 10108 -231 53361 5.279085873 0.97%
Purchase Of Power 2321 3810 -1489
2217121
581.9215223 0.60%
PaymentsTo Employees 3609 3450 159 25281 7.327826087 1.04%
Stores And SparesConsumed 2091 1191 900 810000 680.1007557 1.75% %
Repairs To Machinery 1381 1121 260 67600 60.30330062 1.23%
Royalty 1152 1009 143 20449 20.26660059 1.14%
Tax Rates 423 396 27 729 1.840909091 1.06%
FixedAssets:
GrossBlock 47254 48132 -878 770884 16.01603923 0.98%
Impairment 137 109 28 784 7.19266055 1.25%
Depreciation 13520 12960 560 313600 24.19753086 1.04%
InvestmentsIn Subsidiary 48782 47892 890 792100 16.53929675 1.01%
Finance Cost 1877 1320 557 310249 235.0371212 1.42%
NetFinance Cost 1546 1240 306 93636 75.51290323 1.24%
Exceptional Items 675 595 80 6400 10.75630252 1.13%
Design& Drawings Time
Consumption
404.6 396.5 8.1 65.61 0.165472888 1.02%
Total
2008.577762
2
20.93%
We rejectthe null hypothesisascalculatedchi square table isgreaterthanthe tabledvalue and
conclude thatthere isa significantdifference betweenthe expectedbudgetandthe observed
budget.
22

Now,when the twotablesforcost estimationandtime estimationare compared, we canreduce
the time of orderingandconsumingthe spare parts. The average stock must be keptand minimum
level tobe maintained.
The graphical representationforthe chi square analysisof the costestimationis
as follows:
Sales Capital
Recurring Excise Duty
Raw Material Consumption Purchase Of Power
Payments To Employees Stores And Spares Consumed
Repairs To Machinery Royalty
Tax Rates Fixed Assets :
Gross Block Impairement
Depreciation Investments In Subsidiary
Finance Cost Net Finance Cost
Exceptional Items Design & Drawings Time Consumption
Total
23

ACTIVITY BASED COSTING:
Activity based costing is another efficient tool to costing products and services than the
traditional costingmethod.Ithelpstomonitorthe cause and effect of each processes and the
total set of activitiesperformed leading to a standardised calculation of the activity rate, i.e.,
the cost of each activity per unit of its relevant cost drivers. The above chi square tests
eventuallygave some ideasregardingwhichprocessestook the maximum time and what is its
actual cause. According to the chi square analysis, the most time consuming processes are:
 CONCEPTUALISATION & SPECIFICATIONS OF COMMON CONSUMPTION ITEMS:
The first process (2%), formerly
known as the Conceptualisation and specifications of the items, followed by the
planning process including competitive bidding, final price negotiation till the
placement of purchase order, are a significant cause of an extensive delay. This
consumes a huge amount of time even more than the manufacturing processes
themselves, particularly where special materials have to be ordered from outside
suppliers.
 LARGE DOCUMENT VOLUMES:
The complexity of the size of the document volume
matters a lot with respect to the conceptualisation and preparation of specifications.
The greater the document volume sizes, large variety of specialists are required and
hence the labour hours were in great excess during the production hours.
Sometimes
it does even happen that coupling with other system occurs due to large document
sizes. Therefore, the completion of PDE design had to wait until all the other designs
were completed before the next phases of the delivery process, procurement could
not be executed.

The document volume sizes must not be pushed by the down streams until there is a
real need for its execution towards the work process. If not taken proper care, it can
lead to non-sequencing of the overall volume size and getting the other systems
coupled.
 ISSUANCE OF BIDS:
Issuance of bids is one of the initial time consuming processes (4%)
involving the various steps starting from the technical and commercial aspects. Here, the
vendors are supposed to submit the bids by the specified time. Technical discussions
regardingthe drawingspecificationsmustbe revisedonaregularbasis.Onthe other hand, it
mustevenbe keptinmindthat the negotiationsregardingthe projectcostandspecifications
must be properly conveyed and made at par between both the parties.
 CHANGES DUE TO EARLY COMMITMENT:
During the early stages, designs and
drawings need to be completed prior to the RFQ of the prospective project. At this
stage, the professional engineers had to make assumptions regarding some input
values such as breakage sizes or get approvals for the submitted drawings by the
supplier, which had to be corrected when the information became available.
However, it took a long time before a single change got handled and implemented.
The information had to pass on from the purchasing company, the contractor, the
distributor and the manufacturer and thereafter some negotiations even took place.
The information was processed multiple times which increased the waiting time.
Thus, the transmitting information and information waiting time consumed a major
part of the total lead time.

 DRAWINGS:
After the selection of a vendor(receipt of bids-3%),drawings are
prepared, which represents the technical specifications submitted by the supplier to
the purchaser which takes plenty of time and problem getting approvals from the
higher authority. Drawings generated by the supplier needs to get approved by the
purchaser in order to compare technical specifications as compared to the various
configuration required by the company. This process
 COMPETITIVE BIDDING:
Another great tedious process was the competitive
bidding which occurred soon after the arrangements of specifications of items are
made. The main phases in the bidding were preparing for the RFQs, executing the
bidding process and controlling the post contract deviations or issues. There can be
one or more levels of competitive bidding as per the requirements are concerned.
However, the phases include a wide variety of tasks:
a) Owner(Prebid):
 Prepare prebid request documents,
 Prepare bidders list and send prebid request documents,
 Tabulate Bids,
 Negotiate with manufacturer,
b) General Contracts,
 Compare quotes,
 Negotiate with contractor.
Change order even adds to a greater amount of time waste.

 COMMERCIAL DISCUSSION & PRICE NEGOTIATION:
Once the bids are submitted, a
suitable vendor with a low reasonable bid is selected. The technical and commercial
offers are scrutinized in detail and a list of deviations with respect to enquiry
specifications is prepared. The vendors are then called for discussions to resolve the
deviations. Price bids are evaluated by Project Manager after the finalisation of all
the technical and commercial terms and conditions. This is because either the
supplier or the purchaser may have different strategies at different price levels. This
includes three or more rounds of negotiations which actually kills enormous
amount of time (2%).
 SUPPLIER PERFORMANCE:
Another frequent cause of delay is the late delivery of
materialsandcomponents,some breakage occurring during the production process in the
machinery, or may even be if the supplier is having any difficulty in organising things and
strategizing the overall planning processes. This can lead to increase in waiting time
hampering the progress of the supplier.
On the other hand, excise duty, stores and spares consumption, repairs to machinery,
impairment,finance costwere some of the activitieswhere enormoustimewas consumed.
 STORES AND SPARES CONSUMED:
Now, when the two tables for cost estimation and time
estimation are compared, we can reduce the time of ordering and consuming the spare
parts. The average stock must be kept and minimum level to be maintained. Raw
materials,sparesmustbe properlykeptinagoodcondition andmaintainedinaminimum
content.

 EXCISE DUTY:
Difference types of taxes which are levied upon the products and services
underthe state and central governmentactuallyconsumeslotof costindirectlyduringthe
processing and execution of the process.
 EXCEPTIONAL ITEMS:
In case of any addition or requirement of new value added
products and services, the cost incurred in the processes is also considered to be the major
sign of the cost driven throughout. It eventually depends upon the higher or lower value
addition to the products, or different consumption levels, new brands product or services,
factors of cost inflationeffectontotal project cost, number of manpower or any tax rates or
discount rates through aggregation of companies.
Therefore, the key areas where necessary measures must be taken in
order to tackle with any additional risk of interruptions to production while reducing
the long lead times during the procurement processes are as follows:
 ORDER PROCESSING:
Order intake, specification of equipments and planning
procedures are often a cause of extensive delay. The main problem lies with the
professionals for not being familiar with the utility company application process.
Lack of knowledge and availability of resources can not only delay the application
process and design implementation but also causes additional work for the
professional engineers, the purchasing company as well as the contractor.
Therefore, there must be a proper knowledge as well as get timely information
regarding the equipments and the application process of the company.

This would ensure what and how much quantity of the specifications of items is
required which would further eliminate the unnecessary wastage of time and
resources caused due to the ordering of huge amount of specifications including
the value added as well as the non added products.
 REDUCING THE SIZE OF DOCUMENT VOLUMES:
Processing large volumes led not only to
long lead times processing but also created a mess for every piece of equipment in
order to wait until the huge lot were specified before a single drawing could be
moved to the next delivery process. Even the complexity and size of the document
volumes involved a large variety of specialists working upon the huge lot and
hence the labour hours increased up to a greater extent. Thus, this reduced
flexibility in the overall process and led to extra time wastage, more than the
normal processing time. The solution for this is to attack the set up time the
machine takes for the new batch. Reduced set up time increases flexibility and
decreases the economic order quantity leading to the reduction of waiting time
and improving utilisation.
 IMPROVING DESIGN & DRAWINGS:
Since some of the critical processes required large processing
time for them to either get properly implemented in the process due to some
breakage or missed input values or getting approvals of the drawings, a huge
amount of time is wasted for the information to travel through a number of
professionals to get approvals of being processed.
Therefore, it is suggested to have a proper knowledge of the
processes which needs to get improved.

Thus, the organisational relations have to redesign in order to streamline the
document flow so that the information flows between the technical engineer and
the manufacturing plant is significantly shorter. This can be achieved by reducing
the document volumes thereby decreasing the number of players in the process.
This would ensure the savings of time, money and resources.
 STRATEGIZING COMPETITIVE BIDDING:
Competitive bidding consumes not only time but also
significant resources. Each supplier had their own strategies at their own
determined prices which can creates difficulty for the purchaser to select the
suitable supplier who can significantly contribute to make the project a huge
success. Reducing inflexibilities during the bidding processes actually led to a
number of changes after the procurement of the equipments. Since more amount
of resources were involved in excess due to the frequently occurring changes, it
turned out that the range of the suppliers bid was low but the bidding process
consumed more money than was gained. The purchaser therefore, is suggested to
reduce the life cycle cost of the equipments, reduce the document volumes,
review the design and drawings, look for any errors existing in the process which
needs to be corrected and reduce the setup time the machine takes for processing
each batch. Moreover, the equipment had to be properly assembled and
components had to be of high quality brand components.
 PROPER EVALUATION FOR DISCUSSION & PRICE NEGOTIATION:
After the selection of a suitable supplier, the supplier is called
for discussions regarding price determination and proper evaluation of the
techno-commercial part of the bids.

It is the sole responsibility of the purchaser as well as the supplier to identify
the redundancies and design a systematic error prone work flow to eliminate the
non value added activities. They must meet with each other to discuss possible
new products or markets and other beneficial strategies. Suppliers may also offer
valuable inputs to corporate objectives and issues. Meanwhile, the purchaser even
has to have a regular visit to the supplier’s manufacturing work place in order to
check if there are any existing errors or breakage which needs to be corrected or
whether the supplier is having any difficulty to strategize the overall plan for the
execution of the process. In such a case, the purchaser must make a quick move
and provide a helping hand to find out the best strategy at the most reasonable
price possible. Tighter relationships with supplier can result in supplier integration
which can lead to shorter lead times, higher quality and more reliable fulfilment.
As a result, revisiting supplier relationships and negotiating contracts further
strengthen the Supplier Relationship Management (SRM).
 BENEFITING THE ORGANISATION AS A WHOLE:
During the project processing period, it is very
necessarythatthe technical engineers,the executiveprofessionalsaswell as the supplier
needs to review the checklist after processing each step, such as Order processing,
specifications and planning, production control and purchasing. Cloud computing
technology has proved to have created a profound impact in filling the overall
communicationgapsamongeachdepartment.Thisservestobe a single commonmedium
where in full information is available of each work processes to each departments
concerned.Thishelpstoknow where andhow eachdifficultycouldbe properlyexamined
and workout for a clearly defined business strategy. Problems like shortage of required
equipments,breakage foundinthe ongoingprocessesof machineryduringthe production
phase,nonsequentialprocessactivities,lackof knowledge andinformation, changes due
to earlycommitmentorchange orders,implementation of improved design or drawings,
increasinginflexibilitiesdue tolarge documentvolumes,etc.,canbe effectivelyaddressed
by reviewing the progress report on a regular basis which henceforth could help to
achieve a competitive edge in the present market scenario.
31

SATISFYING A CUSTOMER’S REQUEST:
FINALISATION OF SPECIFICATIONS
SENDING REQUEST FOR QUOTATION
RECEIVING QUOTATIONS
TECHNICAL ASPECTS COMMERCIAL ASPECTS
DRAWINGS TO BE SUBMITTED
BY SUPPLIERS
NEGOTIATE WITH SUPPLIERS
DRAWINGS TO BE APPROVED
BY PROJECT MANAGER
COSTS DETERMINED AND MADE
AT PAR
ORDER GOT PLACED
SUPPLIERS ARE EXPECTED TO
DELIVER THE GOODS
COMPANY ISSUES THE GOODS
INSTALLING AND
COMMISSIONING IS DONE
PERFORMANCE ACCEPTANCE
TEST IS DONE
FINAL PAYMENT IS DONE

DESCRIPTIVE ANALYSIS:
The descriptive analysisfortime estimation andcostestimation isfoundtobe:
In thiscase,the skewness is1.11 whichispositive andhence concludesthat
the actual time isdeviatingfromthe expectedtime.Onthe otherhand,the skewnessforcost
estimationis2.53 whichispositive andhence concludesthatthe actual cost is deviatingthe
expectedcost.
Cost Estimation
Mean 7328.148
Standard Error 3386.569
Median 1546
Mode #N/A
Standard Deviation 14761.71
Sample Variance 2.18E+08
Kurtosis 5.448626
Skewness 2.537974
Range 48778.04
Minimum 3.96
Maximum 48782
Sum 139234.8
Count 19
Largest(1) 48782
Smallest(1) 3.96
Time Estimation
Mean 19.72727273
Standard Error 5.845108148
Median 8
Mode 40
Standard
Deviation
19.38603058
Sample Variance 375.8181818
Kurtosis -0.00595611
Skewness 1.118981733
Range 56
Minimum 4
Maximum 60
Sum 217
Count 11
Largest(1) 60
Smallest(1) 4
33

ROLE OF STRATEGIC SOURCING IN
REDUCING THE LEAD TIME
Strategic sourcing is the basic concept of making the purchases by evaluating, selecting and
aligning with suppliers to achieve a company’s objectives and issues. It deals with what is
actually needed by the company based upon the present supply market conditions and then
develops a plan for both short and long term sourcing objectives. Therefore, it can benefit
the purchasing and procurement management as a whole in order to come up with the
require goods and services strategizing the overall plan at the most reasonable price
possible.
Strategic sourcing even enables greater dimension in making work processes
easier and impactful. Internet is one of the effective tools which are highly useful for
sourcing and procurement. Strategic sourcing has been e-enabled through web applications,
market places that support requests for information (RFIs), request for quotation (RFQs),
purchase orders, logistics, arrangements, payments, etc. Strategic sourcing can therefore, go
well beyond cutting the costs and saving time. It can have an immense impact on the
company’s financials and even influence the purchasing and procurement processes.
Therefore, it is very important to establish beneficial strategies for the proper execution of a
project:
 INFORMATION AVAILABILITY:
There is a possibility of getting differences in costs,
availability and selection of a particular commodity while making purchase. On the other
hand, there may be even possible benefits where a souring professional recognizes that
there will be a shortage of a particular product and can plan for an alternate supplier
instead of worrying about the missed deliveries leading to product backlogs.

Therefore, strategic sourcing enables the company to constantly evaluate, information
about the business strategy, overall market conditions, supplier performances, internal
needs and upcoming beneficial engineering changes and to adjust accordingly.
 ORGANIZATIONAL COMMITMENT:
Strategic sourcing helps in understanding of what is the core competency of
a particular company and what yet is needed to achieve in order to support a clearly
definedbusinessstrategy. Intranetprovidesa medium for communicating corporate goals
and objectives as it is single medium through which full information regarding each and
every work stations and meetings is provided in common to each department. Non-value
added functions that waste critical time, resources and require financial support can be
identifiedandeliminated.Moreover,itbecomesnecessaryforafull fledgedinvolvement of
both the purchaser and the strategic sourcing supplier to have a regular discussions and
negotiationsnew productsavailabilityorimplementations of new machinery or beneficial
strategies.Eventheymusttake initiativesidentifyingredundanciesanddesign a systematic
work flow to eliminate the non value added activities. This helps in building a Supplier
Relationship Management (SRM).
 SUPPLY MARKET UNDERSTANDING:
Strategic sourcing has broadened the
understanding of the organisations2
to mainly stress upon the present market conditions while making purchases. Even
the position of suppliers in the existing market, the presence or absence of
purchasing product’s substitute or compliment and finally the supplier’s capabilities
or overall strategies adds greatly to a proper purchase making. This helps an
organisation to know what its core competencies are and what is yet needed to

achieve understanding ways to have the best strategy at the most reasonable price
possible.
 TOTAL COST EVALUATION:
Total cost evaluation points out some of the basic criteria in order to
reduce the total cost and save time accordingly. This mainly depends upon how better is
the negotiation skills of the executive skills, conceptualisation or preparation of
specifications, selection of a suitable supplier and to what and how to install or process
resources at a reasonable prices and even the true life cycle costs of a particular product.
Thus, strategic sourcing can increase the value and find out ways t contribute to a greater
part of savings for a company.
 MODIFYING APPROACH TOWARDS SUPPLIERS:
Today, there is a huge competition among the organisations in order to
find the bests solution which could not only minimize the total cost but even the time
improvisingthe performance of both the purchaser and the supplier company. Internet and
online bid have created huge differences in the competitive environment. It has even
increasedthe responsibilityof the suppliersformaintenance of lowering the overall bidding
cost as well asthe total project cost. Hence, they need to understand the market conditions
to look for possible opportunities and benefits preventing the risk of failure. Strategic
sourcingcan be thus provingbeneficiaryinevaluatingandmodifyingsupplier relationship to
achieve the desired results.
 ORGANIZATIONAL ROLE CHANGES:
Executive professionals have to primarily focus upon the sourcing
objectives such as placing orders, rescheduling orders, resolving invoice discrepancies and
have little time available to focus on higher value activities such as supplier management,
35

market research, and meeting with internal customers to understand how their needs are
currently being met or are potentially changing.
 CULTURE PROCESS FOR CONTINUOUS IMPROVEMENT:
Continuous improvement is a means to define the present process and
planfor furtherimplementation of change accordingly, which is very hard to achieve. Here,
all the major successfactorssuch as organizational commitment,organisational role changes
and measurements needs to be taken into account for having continuous improvement
strategies in the processes.
36

IMPACT OF REDUCING THE LEAD TIME
BENEFITING THE ORGANISATION
Reducing the lead time during the procurement process is the main idea for making a company
achieveshuge success.Thiscanfurtherleadto lowering the overall risk, expenditure, lead time,
and resources utilisation thus creating a huge impact on increasing the efficiency levels for a
company.
 STAFF TIME SAVED:
The main complication actually arises from the implementation of processing
the specificationof large voluminousbatcheswhichincludesmore numberof professionals
and therefore leads to extra time, money and resources wastage. The setup time for
processinglarge volumes becomes difficult and sometimes, it does even happen that the
huge lotis pushedtowardsthe downstreamprocessingwithoutrealisingthere isa need for
it.Thus, thisleadsto a non-sequenced document size processing and increases lead time.
So, the strategic processing must involve shorter volumes which reduce inflexibility and
leadtime inthe processleadingtothe decrease in the number of staffs and even the time
reduces staff time also.
 PROCUREMENT –EFFORT AVOIDANCE:
37

As stated above, if there is even a possibility in reducing the amount spend
upon each staff members and hence cost reduction criteria can be successfully met and
avoids much stress or complexity in the process leading to the smooth flow of the overall
process.
 E-TOOL IMPLEMENTATION:
Internet has proved to be an effective tool in making the communication easier than
before. Now,huge organisations have their own common working site formerly known as
Intranet,whichhasall the possible informationforeveryongoingprocess available to each
department so that they could avail easily to the information and can plan suitable
strategiestoovercome anyupcomingproblem.Thiswouldnotonlysave staff time but also
helps to prevent redundancies occurring in the process.
 CULTURAL CHANGES:
Cultural changes are very necessary for a company depending
upon the ever growing market conditions. The requirements of the company keeps on
changing time to time and there is an increased scope that the main competencies must
primarilyfocusseduponwhilemakingpurchases or deals. Therefore, there is an increased
necessity of the purchaser as well as the suppliers to focus upon the key areas such as
carrying out a well planned market research, meetings with internal customers and
suppliers and even to keep a checklist and review each step after processing. This would
not only give them the idea of the next task but also show them where the existing
problems are and how to address it. This could lead an organisation with more number of
improvement changes compared to the last project and as sense of continuous
improvement strategy will be developed.
 DEMAND REDUCTION:
38

There is a requirement of keeping updated information
available throughout the procurement activity creating a need for the executives to meet
on a regular basis. In some cases, the demand for travel significantly reduces as the new
videoconferencingtechnology has come up and thus, is now no need for travelling far off
for regular updates which thus, saves time and money.
 STANDARDISATION:
Organisations often want to upgrade a new technology or add
a newfeature or value toa product whichaddsto a product standardisationandassociated
benefits.The valueof eachbenefitcouldsignificantlyreducethe total costcoming from the
supplier,itsoverall production and optimum utilisation of resources. This helps to reduce
the time and money.
 REDUCED INVOICING COST:
Reduced invoicing cost can only be achieved by procuring
specifications as per the requirement and not only involving large volumes which could
furtheraccommodate large spacesandthere will be anincrease inthe travelling expenses.
This can led in maintaining a reasonable travelling budget for the transportation of
specification of equipments to the supplier.
As far as the efficiency improvement is concerned, the reductions in the
procurement lead times not only improve overall efficiency but also lead an organisation
makingpurchasesina well strategicmanner. Following are the criteria’s where significant
improvements with respect to making purchases for a company:-
 CAPITAL REDUCTION:
The overall capital depends not only upon the negotiated
agreeduponprice withthe supplierbut also the total cost. The purchaser and the supplier
39

must take certain initiatives to drive reduced cost and time in the business. Non value
activitiessuchaswaste,breakage or any existing errors can be significantly addressed and
removed from the process. The production must be set up so that defects cannot occur
until relevantinformationisavailable forfurtherprocessing.Thiscanleadtoincrease in the
supplier performance and decreases wastage of time and money enhancing the overall
capital reductions.
 PRICE REDUCTIONS:
As the capital expenditure reduces, the price for the goods or
service even reduces. In case, there is a bulk purchase when multiple agencies combine
their orders, there is a saving between initial paid price and the new agreed price.
 ADDED VALUE:
When any value is added to a product or service and the price of
the product still remains the same there is a full chance in the increase in the demand for
that product in the market. Therefore, the level of sales increases up to a greater extent
and cash releasing benefit can be significantly achieved.
 COST INCREASE AVOIDANCE:
If the offered price by the purchasing company goes above the
price bid by the respective supplier, then the remaining increase in price is avoided. This
reduces the total capital expenditure for the organisation to invest in the project.
 SPECIFICATION OF ITEMS REDUCED:
It is wise for a company to procure only the quantity and the
quality required which enables a company to reduce extra wastage of time and even
40

puttingextramanpowerandefforts.Purchase forhuge lotvolumescan be avoided leading
a company to optimized utilisation of the limited resources.
SIGNIFICANCE OF REDUCING THE LEAD TIME
FOR A COMPANY
Procurement process, as a whole, has always been known as great time consuming step in the
overall supplychain.Itisall aboutmakingpurchasingdecisionsbasedonwhatis currently required
by the company. The purchaser connects the purchaser with the supplier and so it is very much
important to maintain a healthy relationship through supplier relationship management system.
The main ideabehind the procurement is to reduce the lead time, costs, and expenses leading to
increase in the overall efficiency.
Some of the major time consuming procedures such as making
arrangementsforcommonconsumptionsequipments,carryingoutroundsof negotiation between
the supplier and purchaser in order to convince the supplier to adopt a similar strategy at a low
reasonable budget,mustbe significantlyreducedwhichcouldprovide better solutions company to
achieve the three main value drivers:-
 COST REDUCTION:
It is the first thing which comes to mind when thinking of
reducing complexity in the procurement process. It indirectly results in the reduction of
costs (particularly total cost of ownership) in different ways:
A) REDUCED INTERNAL COSTS:
41

When focussing upon internal costs, the first criterion
of cost reduction is the procurement of efficient products and the reduction of their
consumption during the work production processes. Primarily, the arrangement of the
common consumption items takes a longer time and even is required in a huge quantity.
Thus, there is a need of ordering extra efficient items only when required which would
most probably keep the costs down.
So,it isbeneficialforacompany tomake furtherinvestments on efficient products (lower
energy consumption, longer lifespan, lower maintenance cost) where higher investment
cost will be offset by lower operating costs, resulting in lower Total Cost of Ownership.
Apart from the efficient products, there has also be seen a need on the reduction of non
production/non value addition products categories which leads to increase in wastage of
time, value and money.
B) REDUCED SPECIFICATION/ DEMAND:
Specifications must be reduced which are not required, for
example, over packaging, in case of procuring materials and delivering the raw
materials to the supplier.
C) REDUCED ENVIRONMENTAL & SOCIAL COMPLIANCE COSTS:
Social and environmental taxes represent huge expenses
significant expenses. Some of the waste equipments and packages carried some
weight and were therefore adds no value to the overall bunch. Cost reduction can
be achieved through lighter and eco designated products. The normal freight tax
and insurance tax charges can be minimised by subtracting the wastage number of
goods carried for delivery from one place to another. These taxes are calculated on
the basis of the total weight of the products used for carrying and forwarding
purposes.
42
19

 RISK REDUCTION:
Cost reduction is a primary tool for reducing complexity and wastage which could
therefore, lead to uncertain conditions and increased risks. Risk management is another
criterionwhichisusedtoreduce unanticipateddisruptionswhichcan be costly. Companies
not only are finding the suitable way to better implement at the time of occurrence of
disruptions but also they are trying to anticipate disruptions before they occur.
There is an increased risk in such a condition where the company involves a new idea or
methodor implementsanew plan which can have an adverse effect either can be a worth
planto achieve economiesof scale or lead a company to a disastrous condition. The brand
reputation of a company depends upon the effectiveness of the events involved for the
executionof the workprocesses with the suppliers. Some of the events have led to direct
costs (recall of products, financial penalties) or indirect costs (decrease in market share,
sales and market cap, product boycotts).
Despite the difficulties of the evaluation of effects
of the supply chain, there are few examples which can prove to be effective in terms of
choosing a beneficial supply chain sustainable strategy for the growth of the company.
In case of Nike who was publically
accused Life Magazines for using child labour in Pakistan to manufacture soccer balls.
Despite NGO protests and media pressure, the share price did not show any sign of
decreasing over the year. This crisis lasted until the company declared some long term
measurestoimprovise the working conditions at Nike’s supplier factories. Nike therefore
implementedandhasinvolvedasustainable approach in the overall procurement practise
by creating value and quality reducing costs. However, it may have to bear some indirect
costs which hardly had any such great effect on the market capitalisation of the company.
 REVENUE GROWTH:
This stage is the resultant of cutting down costs effectively in the overall
planin orderto reachan effective andrevenue growthforthe benefitof the company. Cost
and risk reduction is the primary goal for a company to achieve and so, revenue growth
43
19

stage is the leastexploredare inthe whole procurementprocess,evenisthe most complex
to achieve.
This includes maintaining the normal customer and supplier relationship and
monitoring the environmental innovations of the suppliers. Environmental innovations
helps the company to adopt a given procurement criteria(for example, green energy,
organicfood,raw materialswithahigherrecycledcontent,etc) inordertobenefitfromthe
risk reduction or revenue growth drivers.
It is necessarytoinclude those productcategoriesorimplement those effective measures
whichsupporta greenerysustainable approachtoa procurementpractice whichwould not
hamperthe environmentandat the same time addingvalue andqualitybyreducingoverall
cost and riskleadingtoa higherrevenue growthforacompany. As a result, it would create
additional sales from existing customers or capture new market. This area is actually
grabbing a huge amount of risk as the sales or the revenue growth is difficult to estimate
unless the customers perceives added value and is ready to pay for it.
It is suggested to include a new business strategy which is
formerly known as the so called “green” and “ethical” brands based on a fully sustainable
supply chain. Some of the companies such as Divine Chocolate, Alter Eco, Werner Mertz,
Hipp or JEL in Jewellery have proved to make a successful leap in trying to built a fully
sustainable procurementprocessesThe ever-growingsustainableprocurementpractice not
onlyhelptomaintain one’s current market share but also is a basis for additional revenue
generation. That is why many companies (such as Unilever with Ben & Jerry’s, DANONE
with Stony field’s brand, Les 2 Vaches, etc) have tried to enter the green market through
the creationof a dedicated“green”portfolio(suchasStarbucks,Kraft,Sun, etc). This states
that procurement practice combined with a full sustainable approach is likely to win the
contract which mainly prefers sustainable criteria in the tender process.
44

STANDARD CLAUSES FOR SUPPLY OF
EQUIPMENTS
DEFINITION OF A PURCHASER:
A purchaser (the procurement departments), awards
the supply order to supplier including its terms and conditions in typically
documented contract.
DEFINITION OF A SUPPLIER:
Suppliers are vendors who will supply the plant &
equipments including its directors, employees, successors, engineers, agents or
any of them.
ORDER DATE:
The date which is mentioned in the order is the order date.
PRICING TYPE:
 Prices shall be included in contractor supply of all materials, services, labour and
facilities required for the job excluding free issue materials to be issued by the
purchaser.
45

 Prices must include delivery, incoming materials section, and taxes for road permit,
excise duty, transit insurance, and central sales tax, packing and forwarding charges.
 The unit rates shall remain valid till the completion of the commissioning of equipments
and even implies in the additional cases unless it is being mentioned by the purchaser.
 Any statutory variation occurring in excise duty, education cess, and central sales tax,
imposition of new statutory taxes and duties within the contractual delivery period shall
be to the purchaser’s account against the documentary evidences submitted by the
supplier.
 The contractor needs to furnish the documentary evidences as issued by the
government of India along with corresponding challan and returns by raising
supplementary invoice of additional taxes for claiming the differential amount.
 If, in any case, the contractor is unable to submit the documentary evidences regarding
any changes in the statutory taxes and duties, then the whole expense shall be
recovered by the contractor from his current and future bills and not by the purchaser.
 Suppliers shall be held responsible for any damages incurring during the delivery of the
goods or in the production process or liable for any assumptions and the same shall be
recovered from the supplier’s dues.
 Transporters copy of excise invoice shall be handed over to purchaser’s incoming
material section (IM Section).
 It is the duty of the supplier to provide the purchaser with all the necessary and required
valid documentation so that the purchaser can avail the cenvat benefit.
 Invoices for the claim of payments must be raised by the suppliers.
 If in case, the purchaser is not able to avail the cenvat benefit, either be the reason that
the materials are not cenvatable for the purchaser or may be the actual cenvat benefit
passed to Tata Steel Limited is less than the minimum declared by the supplier, then the
purchaser is not liable for any excise duty or any CST/VAT claimed by the supplier.
46

 Supplier is liable to compensate to the purchaser for any loss, cost or damage suffered
by the purchaser on the availment of cenvat benefit and the expense shall be deducted
from the supplier pending bills.
DESIGN AND DRAWINGS:
 Supplier is liable for the submission of drawings, data, manuals, certificates to the
purchaser at the supplier’s expenses.
 All the drawings shall bear a stamp and date at a prominent place signifying whether the
drawings are preliminary, or submitted for approval, or certified as final or submitted for
information.
 Suppliers even may collect the soft copy of the purchaser’s drawing format.
 All “as built” drawings and documents shall be submitted by the supplier in hard copy
prints, two sets of these shall be submitted to the purchaser and another two to the
Engineer.
TERMS OF DELIVERY:
 The delivery of items shall be in a good condition, duly packed with the freight charges
prepaid by the supplier to the specified location, which may include the Incoming
Material Section, Purchasers works, Jamshedpur.
TERMS OF PAYMENT:
 The supplier shall be entitled to payments as per the terms of payment indicated in the order
including the statutory deductions made by the purchaser’s account.
WARRANTY/ GUARANTEE PERIOD:
 Warranty or guarantee periodshall be of twelvemonthsfromthe date of issuance of Provisional
Acceptance Certificate.
 Duringthe warranty/guarantee period,the supplier shall, at his expense, can repair of replace
at the site free of cost to the purchaser:-
1. Which may not comply with the technical specifications set forth in the contract,
47

2. Which may be a defective or incorrect design,
3. Which, under normal wear and tear proves to be a defective part or gives a poor performance?
 It becomes a purchaser’s authority to take certain suitable measures for repair or replace at
supplierssole riskandexpenses,if ,in case, the supplier fails to repair or replace any defective
part with the stipulated time period(10 days) after the receipt of such notice given by the
purchaser.
 All the repairor replacementcarriedout by the supplier to rectify defects shall be made to the
satisfaction of the purchaseralongwiththe rectifying the part of work which has been affected
by the defects.
 The purchaser issues final acceptance certificate (FAC) to the supplier on the successful
completion of 12 months of warranty/ guarantee period.
 If some difficulties or a defect arises during the operational condition defined in the technical
specifications, the date for issuance of the Final Acceptance Certificate will be extended
accordingly until the defects have been cured.
LIQUIDATED DAMAGES FOR DELAY IN DELIVERY:
 The contract must be completed adhering to the time schedule specified. In case of delay in
delivery due to the liquidated damages, the purchaser has the right to recover those damages
fromthe supplieratthe rate of half percentof the total orderper week of delay or part, subject
to a maximum of five percent of total order value.
OTHER CONTRACTUAL STIPULATIONS:
 INITIAL SPARS QUOTATION:
The supplier must submit his quotation for initial spares for 2 years
trouble free alongwiththe operationof the equipmentofferedincluding the accessories, etc to
purchaser’s group head within two months from the date of this order.
 INSPECTION AT MANUFACTURER’S WORKS:
48

The supplier can give a direct call to the Engineer in advance along with
the necessary internal inspection report, test certificates and material test certificates.
The purchaser can even decide not to inspect the material. In such a case, the supplier will
despatch the material along with his accepted internal inspection report, material test
certificates and certificate of performance of equipment.
If,in case,the material isrejectedatsite or onthe basisof documents send to the purchaser, it
will be the supplier’s responsibility and take back the rejected material within one month of
purchaser’s receipt of replacement items and even the dispatch clearance certificate shall not
bind the purchaser to accept the defective materials.
PATENT INFRINGEMENT & INDEMNITY:
 If the supplier has been addressed of any patents over the equipments supplied to the
purchaser, then the supplier is only to be held responsible to protect or save the purchaser,
customers and the users of its products against all liabilities including costs, expenses, claims,
suits or proceedings at law or violation of any license by the reason of manufacturing
fabricating, or processing with the said equipments or any part. The supplier shall defend or
settle at his own expenses for any claims, suits or proceedings under the Intellectual Property
Right.
The purchaser, on the other hand, shall promptly notify the contractor in writing
of such claim, suit or action giving authority and all available information for framing a
supportingshieldforthe supplier’sconcern.If,atanytime,the installation of the equipment or
the use of the equipmentforwhichitisfurnished,isprevented due to the patent infringement
or claim, the contractor shall promptly at his own expenses shall either protect or procure for
the purchaser the right to use and continue to use such plant or replace the same at his own
expense under the requirement of the contract within the reasonable period to be agree d
between the parties, so that the operation of the purchaser’s plant will not be delayed or
interrupted or lead to loss for the purchaser. If the shipment of the plant or equipment is
preventedasaresultof any claim of patent infringement, the contractor shall furnish and post
the necessary steps to enable shipment to be made without delay.
49

FORCE MAJEURE:
 During the continuance of the processing of order, any natural calamity such as fire, flood,
earthquake,explosion, epidemic, quarantine restrictions or either any declared war, hostility,
acts of the publicor enemy,affectingthe performance andrespective obligation of the parties,
then the supplier needs to submit the documentary evidences to the purchaser in order to
extentthe date of deliveryorcommencementwithin15daysand terminate the previous order.
 The purchaser,incase, extendsby a period equal to how many days the eventuality happened
plus an additional period considering a reasonable obligation by the purchaser. The overall
damage expense will be bearded by the supplier itself. Both the parties should consult each
other and take measures in order that both of them have a
Win-win settlement.
50

STANDARD CLAUSES FOR SITE SERVICES
PRICES BASIS & DUTIES:
 The prices includes all the expenses a supplier needs to bear while making final delivery to the
purchaseralongwiththe services,labourandfacilitiesrequiredforitsproperexecutionexcluding
the free issue materials provided by the purchaser.
 The total ordervalue isinclusive of all applicable taxes & duties including service tax, education
cess and secondary & higher education cess, VAT works contract tax as per mentioned in the
order.
 The price rates shall remainconstantuntil the completion of the project or during the validity of
the work order no matter how much ever it is extended.
 The contractor unit rates shall remain fixed even if there are any changes in the quantity of
individual items. The value must remain within 25 percent.
 The price is inclusive of 1 % safety reward which shall be paid to the contractor.
 Any variation in services tax, education n cess and higher and secondary education n cess
occurring after the date of Letter Of Intent, within the contractual period of completion, the
purchaserisresponsibletorevise the new payments of the supplier including the new taxes and
levies and make recovery of the same to the supplier’s account against the documentary
evidences by the contractor.
28
51

 The contractor shall be responsibleforhiswrongassumptionsof the leviedaxesand duties in the
orderprice or if anyof the taxes not included by the supplier shall be paid by the supplier itself.
 In case of any loss,the contractor shall indemnify and compensate for the same due to the non-
availment of cenvat benefit by the purchaser of service tax and cess which is included in the
invoice by the supplier.
 In orderto claimreimbursementof the service tax,educationcess,primaryandsecondary n cess,
the contractor shall fulfil:
1. The contractor shall submit the invoice in a standard prescribed form.
2. The contractor shall furnishthe service tax registrationnumberandservice tax category in the
invoice.
3. Invoice must have invoice date and pre printed number.
4. The contractor shall submita declarationthat they will be discharging the service tax liability
on the due date.
5. Invoice must be signed by the authorized signatory of the contractor or service provider.
COMPLETION PERIOD:
 The entire jobshall be completedbythe supplierwithinthe specifiedperiodmentioned in the
order from the date of issuance of the letter of acceptance/ intent.
 In case,there are some variationsbetweenthe deliverydatesagainst each item and the dates
calculatedbasedonthe completionperiodgiveninthe text of order, then the data calculated
based on the completion period given in the text order shall be binding for all contractual
purposes.
TERMS OF PAYMENT:
 The supplier shall be entitled to payments as per the terms and conditions subject to any
statutory variations or deductions which the purchaser may be authorized to make.
SUBMISSION OF BILLS:
 Bills or invoices shall be prepared as per the order. It must be in required numbers of addressed to
Chief Financial Controller,shall be submittedtoBill Group,Central ProjectEngineering Division, along
with the duly filled in bill forwarding checklist and even the documents. The bill shall contain:
52

1) Order reference and date,
2) Scheme Number,
3) Bill/Invoice number and date,
4) Running Account Bill number,
5) Contractor’s Vendor Code,
6) Name of the contractor,
7) Name of the contact person,
8) Name of the engineer,
9) Contractor contact person’sname,telephone number, Mobile Number, Fax Number and
his Email Address,
10) Contractors service tax registration Number.
Vendor must furnish the following information in their service bills:
1) Bill should be in the name of Tata Steel Limited, Jamshedpur,
2) Vendor Code,
3) Service tax registration number and service tax category on face of the bill,
4) Separate line item for service tax & cess on face of the bill,
5) Bill serial number and date must appear on the face of the bill,
6) Signature of vendor/ authorized official on behalf of the vendor stamp.
WARRANTY / GUARANTEE PERIOD:
 Warranty or Guarantee period shall be of twelve months from the date of issuance of
Provisional Acceptance Certificate.
 Duringthe warranty period, the supplier shall, at his own expense, can repair or replace at the
site free of cost to the purchaser:-
1) Which may not comply with the technical specification set forth in the contract,
2) Which under normal and proper use and maintenance proves to be a defective part or is
exhibiting poor performance, subject to normal wear and tear,
 It becomesapurchaser’sauthorityif,incase, the supplierfailstorepairor replace anydefective
part with the stipulated time period(10 days) after the receipt of such notice given by the
purchaser.
53

 All the repairor replacementcarriedout by the supplier to rectify defects shall be made to the
satisfaction f the purchaser along with the rectifying the part of work which has been affected
by the defects.
 The purchaser issues final acceptance certificate (FAC) to the supplier on the successful
completion of 12 months of warranty/ guarantee period.
 If some difficulties or a defect arises during the operational condition defined in the technical
specifications, the date for issuance of the Final Acceptance Certificate will be extended
accordingly until the defects have been cured.
LIQUIDATED DAMAGES FOR DELAY IN DELIVERY:
 The contract must be completed adhering to the time schedule specified. In case of delay in
delivery due to the liquidated damages, the purchaser has the right to recover those damages
fromthe supplierat the rate of half percent of the total order per week of delay or part, subject
to a maximum of five percent of total order value.
VIRTUAL COMPLETION CERTIFICATE:
 As soonas the engineerfinisheshiswork,the engineeronreceivingawrittenapplicationfromthe
supplier t issue certificate of virtual completion, together with a written undertaking by the
contractor of finishing an outstanding work within a short period with a proper satisfaction and
being occupied or used by the purchaser, issues a certificate of virtual completion. After the
issuance of sucha certificate,the defectliabilityperiodand the overall shall commence from the
date of virtual completion of work.
On the other hand, if any part of the work is under the foregoing provisions shall
not be deemed to certify completion at any grounds or surfaces requiring reinstatement and
thereby leading to non issuance certificate of virtual completion.
PERFORMANCE TESTS:
 The contractor shall demonstrate the performance tests as per the technical specification.
In case, if the results of the performance guarantee tests are not satisfactory, subject to the
permissiongrantedbythe purchaser,thenthese are knownasliquidateddamages.Insucha case,
the contractor is supposedtorepeatthe testsafterrectifications and adjustments within 15 days
havingfull intentof the purchaserfromthe date of the repeatingtests.Maximum three numbers
54

of teststosatisfythe performance guarantee parameters. The purchaser shall accept the plant &
equipmentwiththoselimitedliquidateddamages if the results are within the tolerable limits as
specified in the technical specifications. The contractor is payable in such case for any small or
bearable damages.
SAFETY, OCCUPATIONAL HEALTH AND TPM REQUIREMENTS:
 Under the safety and occupational health Policy, the purchaser has adopted a “zero incidents”
strategy.Incidentisdefinedasanyeventwhichresultedorcouldhave resultedininjurytohuman
beinglossordamage to equipmentorhumanor propertyproductionloss/adverseenvironmental
impact or adverse environmental impact or adverse community reaction.
Each supplier needs to meet the entire safety standard in order to ensure there is “zero
incident” and eliminate all unsafe conditions which could hamper a safe working environment.
SAFETY STANDARDS & COMPLIANCE TO SAFETY STANDARDS:
 There are altogether61safetystandardsapplicable inthe project sites which are available in the
project sites which are available in the “safety” page of purchaser intranet site.
The contractor is required to acquire a copy of the same from the
purchaser and considered as mandatory follow all the safety measures while carrying out the
manufacturing process.
TPM- GENERAL SAFETY REQUIREMENTS:
 Visual Workplace Management at the commissioning & Installation stage:-
1. Designating paint on all pipelines and giving direction of flow on it.
2. Writing the name of all the permanent and temporary structures on it permanently.
3. Transparent roof to provide natural light to the shop floor.
4. Making the provisions for parking of all type of vehicles and all type of visitors.
55

5. Entry/ No Entry/ Restricted Entry, Exit/ Emergency- Exit / No- Exit clearly marked in all the
Entry and Exit points.
6. Standardised name plates and room numbers of doors.
7. Giving unique name to all the equipments, written on its body.
8. Keep provisions near the equipment to install information board.
9. CustomerCorner(mentioneddetailsregardingall the processes, products,etc) is put near the
main entrance.
10. Fixing docking location for moving equipment or transportation items.
11. Clear cut “Open- Close marketing “on each value.
12. Importantspecificationsof the equipment(forex.,foramotor, RPM, Rating, etc) written on it
prominently.
13. Process parameters of the equipment, displayed near the point of use.
14. Earmarked areas to keep hazardous material.
15. Mark on all transparent glasses to avoid any collision.
16. Mirror at all blind curves.
17. Each and everylocationallottedforfire extinguisher must be marked with a serial number as
in FE/1 and so on. The type of fire extinguisher should also be marked like DCP, Carbon
dioxide, Wet carbon dioxide, and FOAM, painted by white fluorescent paint on a red
background of 30 cm* 21 cm.
18. Fire hydrantspointsmustbe numberedstartingwithFH/1andso on. Letterdescriptionshould
be of 9 cm.
BILLING SCHEDULE:
 The contractor shall prepare andfurnishtothe purchaserandthe Engineerwithintwo months
from the date mentioned in the contract, a detailed billing schedule with break up price
schedule alongwiththe progresspaymentwithidentifiablequantitiesof workaccordingtothe
breakup price schedule,forpurchaser’s/Engineer’sapproval.Progresspaymentshall be made
to the contractor based on the approval of the billing schedule and terms and condition
mentioned in the contract.
 The billing schedule shall be submitted by the contractor in soft copies to the purchaser/
Engineer in the text format for approval. After the finalisation and approval of the Billing
Schedule, the same shall be submitted by the contractor for incorporating in “SAP” system.
56

TIMELY SUBMISSION OF FINAL BILL:
 It is the contractor’s responsibility to submit the final bill within two months from the
completion of the job and claim for extra job to the purchaser. Even the purchaser reserves
the right to reject any claim for job/extra job until the details of the previous job are not
submitted within one month of completion of the job.
The final bill must be submitted with the following documents:
1. No claim certificate,
2. Store clearance certificate,
3. Wage clearance certificate,
4. Gate pass clearance certificate,
5. Reconciliation statement for materials issued by the purchaser,
6. Safety performance of the party,
7. Any other documents mentioned in the order, etc.
PROVISIONS OF WORKMEN COMPENSATION ACT:
 The contractor must keepthe purchaseraware of the claimsor proceedings for compensation
under the provisions of the Workmen’s Compensation Act so that the purchaser can make
suitable arrangementsforanycostsor expensesincurredtothe purchaser due to such claims.
Eventhe purchaseris obligedtopaycompensationtoa workmen employed by the contractor
or sub contractor’s in the execution of the contract which the purchaser can recover by
deducting that particular sum of money from the dues of the supplier. In such a case, the
purchaserisnot to be responsibleforanyclaimsmade againstthe supplieruntil the purchaser
either for some issues or handling the full security for all costs. This can make the purchaser
liable to an extent of contesting such claims.
57

CONCLUSION
Reducingthe procurementleadtime is actuallythe mainissuefromwhere acompanycanbenefit
itself notonlyintermsof time, money and resource utilization but even can construct , improve
and include the bestcostcuttingstrategymaintaininghighquality and standardisation. But here,
the main problem is that there are a variety of scopes for reducing the lead time but there after
organisations are not able to reduce it.
On the other hand, reduction in the lead time can only be achieved if
proper and suitable measures are implemented. This can lead further in reducing not only the
lead time but also the risk, total cost of ownership enhancing revenue growth for a company.
Executive professionals need to understand the main causes of the procurement lead time and
analyse, plan and strategize accordingly in order to have a clearly defined business strategy.
Reducinginflexibilitiesandcomplexities can be a major task for reduction and a proper initiative
for a well definedstrategytobegin. Negotiation, being an important time consuming aspect has
to be takengreat care and executive professionalsmustdeveloptheirnegotiationskillsinorderto
make the discussions and negotiations effective with the supplier as well as the customer.
Here, apart from the complexities, strategic sourcing also had played
an economicrole inreducingthe overall costandtime benefiting the organisation in the form of
internet implementation making a simpler way of communication amongst the professionals.
58

Therefore,reducingthe procurementleadtime cancreate a profound impact not only for a short
termbut for generatinghuge businessesandreshapingthe wholesupplychainprocessapplicable
in the long run for a successful company.

project updated 1

Recommended

Recommended

More Related Content

What's hot

What's hot (18)

Viewers also liked

Viewers also liked (13)

Similar to project updated 1

Similar to project updated 1 (20)

project updated 1