Business Process Document

Prepared by: Materials Management Team

Date: 3rd November 2010

Table of Contents1. Company Profile:...........................................................................................................................4

1.1 Company Details:.........................................................................................................................4

2. Products:...........................................................................................................................................5

3. Organizational Structure:...............................................................................................................8

4. Departmental Organizational Structure:.......................................................................................9

5. Material Management Company Structure:................................................................................10

6. Procurement:...............................................................................................................................11

6.1 Types of Procurement:..............................................................................................................12

6.1.1 Standard Procurement:....................................................................................................12

6.1.2 Consignment Procurement:............................................................................................13

6.1.3 Subcontracting Procurement:.........................................................................................14

6.1.4 Stock Transport Order:....................................................................................................15

7. Purchase Cycle:............................................................................................................................16

7.1 Material Requirement:..............................................................................................................16

7.1.1 Material Requirement Planning (MRP):..............................................................................16

7.1.2 Purchase Requisition:.........................................................................................................17

7.2 Request for Quotation:..............................................................................................................17

7.3 Receipt of competitive Bids from Vendors:...............................................................................17

7.4 Comparison of Bids:...................................................................................................................17

7.5 Award PO to Desired Vendor:....................................................................................................17

7.6 Goods Receipt:...........................................................................................................................18

7.7 Quality check:............................................................................................................................18

7.8 Materials sent to store location:................................................................................................18

7.9 Invoice Payment:.......................................................................................................................18

8. Purchase Authority:.....................................................................................................................19

8.1 Purchase Requisition Approvals:................................................................................................19

8.1 PO & Contract Approvals:..........................................................................................................19

9. Material Types:............................................................................................................................20

9.1 Raw Materials:...........................................................................................................................20

9.2 Semi-Finished Material:.............................................................................................................20

9.3 Finished Material:......................................................................................................................20

9.4 Returnable Material:..................................................................................................................20

9.5 Configurable Material:...............................................................................................................20

9.6 Hardware:..................................................................................................................................20

10. Vendor Types:..........................................................................................................................21

10.1 Raw Material Suppliers:...........................................................................................................21

10.2 Sub-Contractors:......................................................................................................................21

10.3 Consignment Vendors:............................................................................................................21

10.4 One-Time Vendors:..................................................................................................................21

11. Services Types:.........................................................................................................................22

11.1 Engineering Services:...........................................................................................................22

11.2 Tooling Calibration Services:....................................................................................................22

Machinery Services:.........................................................................................................................22

12. Inventory Management Process Flow:....................................................................................23

13. Print Output:............................................................................................................................25

13.1Purchase Requisition (Internal):...............................................................................................25

13.2 Request for Quotation:............................................................................................................25

13.3 Purchase Order:.......................................................................................................................25

13.4 Purchase Order Amendment:..................................................................................................25

13.5 Contract:..................................................................................................................................25

13.6 Material Receipt Tags:.............................................................................................................25

14. Reports:...................................................................................................................................26

14.1 MRP Report:........................................................................................................................26

14.2 Planned Orders Report:.......................................................................................................26

14.3 Open Purchase Order Report:..............................................................................................26

14.4 Vendor Evaluation Report:.......................................................................................................26

1. Company Profile: Reliance Aerospace is the worldwide leading manufacturer of Aircraft passenger cabin interiors and structures for the commercial and business jet aircraft markets. Reliance Aerospace is also the leading global distributor of aerospace fasteners.

Reliance Aerospace has leading worldwide market shares in all of its major product lines and serves virtually all of the world’s airlines, aircraft manufacturers and leasing companies through its direct global sales and customer support organizations.

With its Global Headquarters in Hyderabad, India, Reliance Aerospace caters to all the major Aerospace companies and Airlines worldwide. All the products are manufactured from its plants located in Hyderabad and Pune respectively..

1.1 Company Details:Address:

1. Reliance Aerospace (Headquarters and Plant 1)Plot No: 123, Sector II, Aerospace SEZAdhibhatla Village, Ranga Reddy DistrictAndhra Pradesh – 500001, IndiaPh: (040) – 24444444Email: support@relianceaerospace.com

2. Reliance Aerospace Plant 2Plot No: 456, 12th Street, Anand NagarPune, Maharashtra – 500002, IndiaPh: (040) – 24444445Email: Info@relianceaerospace.com

2. Products:Reliance Aerospace offers turnkey solutions to its customers and acts as a single point of contact for all their Integration needs. It is a one-stop shop for Airline companies considering new products, reconfiguration and refurbishment. Reliance’s products are broadly categorized into 7 Product families which accommodate all areas in Interior design for Boeing 737, 757, 777 and Airbus A-330, 350 and 300-600 type aircrafts.

Seating Products Oxygen Systems Lighting Systems Structures and Integration

Galleys & Chilling Systems Water & Waste Systems Consumables

3. Organizational Structure:

4. Departmental Organizational Structure:

5. Material Management Company Structure:

6. Procurement: In our current business cycle, one of the main processes is the procurement process. It is mainly the acquisition of goods and/ or services at the best possible cost to meet the needs of our company in terms of quality, quantity, time and location. The different types of procurement or purchase procedures are listed below.

6.1 Types of Procurement:

6.1.1 Standard Procurement: In standard procurement, the company issues a purchase order to a vendor based on a Request for Quotation (RFQ) or a negotiated contract received from the vendor. The purchase order is a commercial document issued by the buyer to the seller, indicating the types of the products, quantities, pricing, and/or services will provide to the buyer. The purchase order constitutes a legal offer to buy products or services from the seller. After the acceptance or acknowledgement of the purchase order by the seller, a contract is formed between the buyer and the seller. The seller delivers the products or services to the buyer as per the delivery date mentioned in the purchase order. After receipt of the products at the buyer’s facility and after satisfactory quality checks, the invoice or payment to the seller for the said products or services is processed by the finance department.

A. Contract: It is the long-term arrangement between a buyer and a seller covering the supply of materials or the provision of services for a stipulated time period with predefined total purchase quantity at a certain total purchase value. Contracts or scheduling agreements are followed for regular raw materials and make to stock products as per the company Policies and procedures if at all required. Based on the contract conditions, Purchase Orders are issued to the seller as per the dates indicated in the contract.

B. Scheduling Agreement: It is also a contract with a additional document called scheduling lines clearly mentioning the delivery dates and quantity required at regular intervals for a period of time

6.1.1.1 Pricing Conditions:

A) For Domestic Purchases Basic Price – discount is mentioned in the purchase order. On this amount Excise duty and on

the total Sales Tax is applicable. Packing & Forwarding and Freight charges are also mentioned depending on vendor terms.

Pricing Schema – Separate pricing schema to be prepared for each vendor. Pricing conditions may vary form time to time as per RAL polices and procedures and regulations.

B) For Imported Purchases Customs Duty (depend upon the material it will be varied), CVD and SAD will be paid on (Basic

Price + Freight + Insurance). If materials are imported under duty exemption certificate, there will not be any duties.

Duties (BED+CVD+SAD) to be paid on the assessable value (calculated based on Basic Price + Freight + Insurance * 1% for all import purchases. In some cases additional 2% will be added on the above value). But in the both the cases 1% for 1% + 2% should not go into the material cost. This is only for statistical purpose only for calculating the duties to be paid.

Duties are to be paid to Customs authorities and Basic price + freight (if any) will be paid to the vendor.

6.1.2 Consignment Procurement:In this type of procurement, the vendor stations or stores the inventory required by the buyer at a designated location within the buyer’s facility itself. It is very important to note that the ownership of the material lies with the vendor until the material is consumed by the buyer. The payment for consignment material is done

as and when the material is consumed by the buyer or at regular intervals which are pre-negotiated by both the buyer and the seller.

6.1.3 Subcontracting Procurement:As the company may not have a core competency in every step of the production or manufacturing process of its products, it is in the best interest of the company to use the services of sub-contracting vendors to reduce costs or to mitigate risks. In this type of Procurement, the buyer provides the seller with raw material or semi-finished products and to hires their services for certain manufacturing steps or operations.

First the requirements will be generated by the PPC dept., based on the forecast by the Sales Dept.

Operation Subcontracting: In this type of sub-contracting, the buyer provides the seller with semi-finished material for specific operations. Example: Chemical treatment, Milling, Grinding, Painting, Heat treatment etc.

Material Subcontracting: Here the buyer the seller with raw material and requires the seller to perform all necessary manufacturing steps to produce the finished product.

6.1.4 Stock Transport Order:In this type of procurement, goods and services are procured and delivered from one plant to another which is part of the same company. It is important to note that though the plants are under the same company, they do not share material storage locations. The plant which requires the materials places an internal order with another plant that can supply the materials. Thus this stock transfer process involves not just inventory management but also purchasing in the receiving plant.

7. Purchase Cycle:

7.1 Material Requirement: Purchase Cycle described above gives a brief overview of the various steps involved in purchase process followed at Reliance Aerospace. It starts with a requirement for a product or service needed for the production of goods and ends with the payment to the seller who provides them. Currently, these requirements are raised via the following processes.

7.1.1 Material Requirement Planning (MRP):MRP is a production planning and inventory control system used to manage manufacturing processes. It helps to check the availability of materials in a storage location. It is a system which is used to plan manufacturing activities, purchasing activities and align delivery schedules. The reports generated by this process help the company to decide whether the materials required for production are available in the organization or need to be procured from outside.

Types of MRP:

1. Reorder point planning.

2. Forecast based planning.

3. Time based planning

7.1.2 Purchase Requisition:A Purchase requisition is an internal document of the organization which notifies the purchasing department of goods or services it needs to order, their quantities and the time frame. It usually originates from the department requiring the goods or services and is approved by the departmental head for procurement. In conclusion, a purchase requisition document is one which has the following characteristics:

1. It is a primary instrument for identifying materials or services that must be procured.

2. It authorizes the purchasing department to purchase materials in specified quantities within a specified time.

3. It is an internal document. It is not used outside the company.

7.2 Request for Quotation:A request for quotation (RFQ) is an invitation to the vendor to indicate his terms and conditions for the supply of a material or the provision of a service by submitting a quotation. Typically in RFQs information like price per item, payment terms and quality level are requested from the seller.

7.3 Receipt of competitive Bids from Vendors:In the current business process, it is required to send RFQs to a minimum of 3 vendors in order to receive competitive quotes and therefore optimize costs.

7.4 Comparison of Bids:On receipt of the bids, the buyer compares the bids on the basis of pricing, quality and delivery schedule and chooses a single bid or in some cases may split the requirement between 2 or more vendors based on their competencies.

7.5 Award PO to Desired Vendor:After the comparison of pricing conditions, quality and delivery schedule the vendor offering the best deal will be selected and Purchase order will be awarded to that vendor.

7.6 Goods Receipt:The goods as per the Purchase order are received at the company on the stipulated delivery date mentioned in PO.

7.7 Quality check:The materials supplied by the vendors are to be sent for quality check before routing them to the storage location or to any work centres for production. If the quality requirements of the material are not fulfilled, the goods are either sent to a Material Review board for further inspection and may be accepted with a Non-Conformance tag or will be returned to the vendor.

7.8 Materials sent to store location:In this step of the purchase cycle after quality inspection, the material is sent to the designated storage locations or in some cases directly to work centres.

7.9 Invoice Payment:The final process in this cycle ends with forwarding the invoice with regard to the materials received to the Finance department for payment to the vendor.

8. Purchase Authority:

The current business process has specific hierarchy in place to authorize Purchase Requisitions, Purchase Orders and Contracts. It ensures a transparent procedure as these activities deal with commercial and legal implications.

8.1 Purchase Requisition Approvals:

All the Purchase requisitions raised by different user departments will be reviewed by the functional lead and assigns the same to the concerned higher authorities for release procedure.

Note: While creating or modifying the Purchase requisitions by user department persons, the person must specify his name and designation. This option is used for tracking purpose and to find out the status of the Purchase requisitions. The “functional lead” maintains the status of all the records of Purchase requisitions.

The functional head or in charge will review the purchase requirement, decides the procurement type, (example: New enquiry, repeat order or against an existing contract) and forwards it to the purchasing department.

On receipt of Purchase Requisitions from various user departments, the concerned functional head will initiate the purchase cycle. (mentioned in document)

8.1 PO & Contract Approvals:

9. Material Types:

9.1 Raw Materials:Raw material is something that is acted upon by human labor ot industry for use as the basis to create some product. It is usually the first component used in manufacturing process. It is always procured from outiside and it is fed in to production process and may result in to finished good. Their is no sales data for raw material. Examples: Aluminium, Steel, Titanium etc.

9.2 Semi-Finished Material:Material that requires further processing to produce a final product is called semi-finished material. Example: Frames, Joints, bolts etc.

9.3 Finished Material:A finished good is a material that has been manufactured by some form of production from items, such as raw materials and semi-finished material.

9.4 Returnable Material:

In some cases when the seller provides expensive packing material along with goods which can be re-used for future deliveries, the packing material is returned to the seller. Such materials are tagged as returnable materials. Example: Shipping Crates

9.5 Configurable Material:If the materials have variables that are determine by the user during sales process. For example, automotive

9.6 Hardware:Hardware material usually refers to consumable materials such as screws, nuts, o-rings, rivets etc. used in the assembly or the manufacturing process

10. Vendor Types:

10.1 Raw Material Suppliers:The vendor who is supplies raw materials to the company.

10.2 Sub-Contractors:A subcontractor is hired by the company to perform a specific task as part of the overall task. It is in the best interest of the company to use the services of sub-contracting vendors to reduce costs or to mitigate risks. In this type of Procurement, the buyer provides the seller with raw material or semi-finished products and to hires their services for certain manufacturing steps or operations.

10.3 Consignment Vendors:Consignment vendor stations the required material in the company premises. . It is very important to note that the ownership of the material lies with the vendor until the material is consumed by the buyer. The payment for consignment material is done as and when the material is consumed by the buyer or at regular intervals which are pre-negotiated by both the buyer and the seller.

10.4 One-Time Vendors:If the vendor is used once or very rarely, such vendors fall into this category. When a material is needed in an emergency situation and while the regular vendor of the material is unable to supply, then a one-time vendor is used.

11. Services Types:

11.1 Engineering Services: In some cases when the company needs the services of an engineering specialist, it hires stress engineers, electrical engineers, FEM specialists for the job on hand for a specific time-period.

11.2 Tooling Calibration Services:The services of Tooling calibration specialists and instrumentation specialist are hired from time to time when tooling jigs have to be re-calibrated using laser-tracking systems or to re-calibrate all measuring devices in the company.

Machinery Services:Since the company’s core competency is in manufacturing, the production floor is mainly occupied by different types of machinery such as CNC machines, Grinding, milling and tooling equipment. These machines require maintenance and service at regular intervals for that purpose, the services of such specialists are purchased.

12. Inventory Management Process Flow:

Inventory means goods and materials held available in stock by a business. It refers to the stock of resources that possess economic value, held by an organization at any point of time. These resource stocks can be machines, capital goods or materials at various stages. Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods.

Inventory management starts at goods receipt and ends at goods issue to customer.

The material is received at the docking station along with the bill of lading, the corresponding Purchase Order and an Invoice from the seller. All these details are entered into an inward entry register against the material received.

The materials are sent to quality check department where the material is checked thoroughly ensuring quality and specification criteria as mentioned in purchasing order.

If the quality inspection is satisfactory the material is issued to the stores and if the quality requirements of the material are not fulfilled, the goods are either sent to a Material Review board for further inspection and may be accepted with a Non-Conformance tag or will be returned to the vendor. Please note that if the material is returned to the vendor, the Purchase Order Line item of the material in question remains open until the vendor re-sends material that is acceptable as per the quality standards.

Scrap: In case the material received is found to be damaged in shipping and not due to the vendor, the quality, purchase and material departments together assign the material to be scrapped.

Goods movements in stores: User departments raise indents (indent means material issue requisition) when material is required in the production or maintenance process. In response the stores department issues goods as required. In case the specified material is not available in stock, then the user department raises a purchase requisition.

Reservation: In some cases the user departments create indent for material needed in near future. This process is called reservation. Here the material is reserved as special stock and can be issued only to the specific department creating the reservation.

Goods are moved from one storage location to another based on an indent raised by a particular stores department

Based on sales orders, stores dispatch finished products to customer. In case of damage caused during transportation, the defective goods are returned by the customer. Quality

department assesses the damaged material and decides if it is repairable or not. In case the material is not repairable, it is scrapped.

Physical Inventory: At regular intervals stores conducts a physical inspection of all material in the storage location. In this process any differences between the physical quantity present in store and the stock in system are noted and the quantities are balanced at both ends.

The following stores registers are maintained in the storage locations.

A. Inward register : In which daily received entries are entered.

B. Outward register : In this outgoing materials form the stores are entered.

C. Non consumable register : Non consumables materials are machinery, equipment. Example: Furniture etc.

D. Consumables register : Like diesel oil, lubricants, paints, cotton, waste etc.

E. Tools registers : Tools used are entered in this register.

F. Loan register : Non consumable material is issued for a temporary period to user departments.

G. Store ledger : In this material receive, issue, remain balance are accounted.

13. Print Output:

13.1Purchase Requisition (Internal): Purchase requisitions raised by different user departments are printed in a specific manner and are filed by the buyer from the purchase department.

13.2 Request for Quotation: This is an external document which is sent to the Vendor requesting for quotations or bids for the materials the company chooses to procure from outside. It is usually sent to vendors as a printed document or sent via fax or electronic mail.

13.3 Purchase Order: Purchase orders are commercial and legal agreements between seller and taken as a printout in a specific manner and to be filed by the buyer. A purchase order has to be printed/Sent to a vendor in a specified format provided.

13.4 Purchase Order Amendment: After amendment of Purchase order, the same to be taken printout and filed by buyer for record purpose. All the modifications on the purchase order to be documented and to be informed to the vendor immediately.

13.5 Contract: Contracts are commercial agreements between the buyer and seller for a stipulated time period with certain pricing conditions and delivery dates for the materials in question. Contracts will be taken printout in a specific manner and to be filed by the buyer.

13.6 Material Receipt Tags: After goods receipt, the receiving personnel create a material tag detailing the information of the material such as its description, quantity, material number. These tags are useful in easy identification of the material.

14. Reports:For the regular business functioning of the various user departments (purchase dept, operations, finance, S&D), the company relies on reports to act on. These reports contain the actual information or data existing in the system based on which different departments schedule or plan their operations.

14.1 MRP Report:The material requirement planning report gives information about the schedule for the manufacturing and production of the products in the company. The MRP report forms a baseline for the production and purchase department to plan their procurement or manufacturing activities. The MRP report can be generated for both the product lines (Make to Order and Make to Stock) based on the different job codes or based on the individual material numbers.

14.2 Planned Orders Report:For Make to Order products, the planned order report is generated from the sales order provided by the S7D department and for Make to Stock Products, the planned order report is generated from the MRP. In both cases, the planned order report is used to generate production orders for the manufacturing department and schedules purchasing activity for the purchase department.

14.3 Open Purchase Order Report:The open purchase order report assists the purchasing department to take stock of all pending Purchase orders within a time frame or for specific vendor. This report helps in expediting activity if necessary. This report lists the Open Purchase orders that are outstanding with delivery date and quantity.

14.4 Vendor Evaluation Report:Reports in Vendor Evaluation enable you to compare the overall evaluations and scores for individual main criteria attained by your vendors in different ways. They also enable you to determine which vendors have never been evaluated and which vendors are due to be re-evaluated. Purchasing executives can obtain information such as the following:

Which vendors have the best overall score?

Which of the best vendors received a particularly good or bad score for the main criterion "Price"?

Which vendors received a good overall score, but a below-average score for the main criterion "Quality"?

Which vendors received a poor overall score but a very good score when you only consider one particular material?

Which service providers perform services for you on time and with high quality?