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A STUDY ON THE EFFECTIVENESS OF MATERIAL
REQUIREMENT PLANNING IN PURCHASE
DEPARTTMENT IN SIMPSON & CO LTD.
By
KISHORE.P
(Reg.No.31709631047)
A PROJECT REPORT
Submitted to the
FACULTY OF MANAGEMENT STUDIES
In partial fulfillment of the requirements
For the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION
IN
FINANCE AND SYSTEMS
St. JOSEPHS COLLEGE OF ENGINEERING, CHENNAI
ANNA UNIVERSITY
CHENNAI 600 025
AUGUST 2010
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ST.JOSEPHS COLLEGE OF ENGINEERING
(Affiliated to Anna University)
JEPPIAAR EDUCATIONAL TRUST
JEPPIAAR NAGAR, RAJIV GANDHI ROAD, CHENNAI-119
BONAFIDE CERTIFICATE
Certified that this project report titled A STUDY ON THE EFFECTIVENESS OF
MATERIAL REQUIREMENT PLANNING IN PURCHASE DEPARTMENT IN
SIMPSON & CO LTD is the bonafide work of KISHORE.P Reg.no.31709631047
who carried out the project work under my supervision. Certified further, that to the best
of my knowledge the work reported herein does not from part of any other project or
dissertation on the basis of which a degree or award was conferred on an earlier occasion
on this or any other candidate.
DR. S.SUDHA DR. JAYASREE KRISHNAN
M.B.A., PhD. B.Sc., M.B.A., PhD.,
INTERNAL GUIDE HEAD OF THE DEPARTMENT
Department of Management Studies Department of Management Studies
St.Josephs College of Engineering St.Josephs College of Engineering
Chennai-600 119. Chennai-600 119.
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ACKNOWLEDGMENT
First and foremost, I thankAlmighty God for the strength and blessings showered,
for successfully completing the project. I would like to express my gratitude and extentmy best wishes to all people who guided, inspired and motivated me during this project.
I express my sincere gratitude to the management ofST.JOSEPHS COLLEGE
OF ENGINEERING for having provided me an opportunity to do my master degree in
their esteemed college.
My sincere thanks and profound sense of gratitude goes to our respected
Chairman Thiru. Jeppiaar, M.A., B.L., for his sincere endeavor in educating us in his
premier institution andI also take this opportunity to thankDr. BabuManohar M.A.,
M.B.A., Ph.D., honorable director of the esteemed institution.
My heartfelt thanks to our Principal Jolly Abraham M.E., Ph.D., I am
exceedingly grateful to the Head Of the Department Dr. Jayasree Krishnan B.Sc,
M.B.A., PhD., for providing me necessary facilitates to complete this project work, and
for guiding me throughout this project without her valuable help & support, this project
work would have never been possible.
I take this opportunity to acknowledge the help, guidance and co-operation
received from the company DIEMENSIONAL SECRUTIES PVT LTD, Chennai for
providing me an opportunity to do this project in their organization.
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S.NO TITLE PAGE .NO
CHAPTER 1
INTRODUCTION
1.1 Industry Profile 1
1.2 Company Profile 3
1.3 Need for the Study 4
1.4 Scope for the Study 5
1.5 Objectives for the study 6
1.6 Limitation of the study 7
1.7 What is MRP? 8
1.8 Material requirement planning system 12
1.9 Various Processes 13
CHAPTER 2
LITERATURE REVIEW
2.1 Review ofLiterature 32
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Type of research 33
3.2 Research instrutment 33
3.3 Questionnaire design 33
3.4 Sampling design 34
3.5 Data collection 34
3.6 Period of study 34
CHAPTER 4
FINDINGS AND SUGGESTION
4.1 Findings 34
4.2 Suggestions 36
4.3 Conclusion 38
Bibliography 39
Annexure 40
TABLE OF CONTENTS
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TABLE .NO LIST OF FIGURES PAGE. NO
1.9.1 Diagram showing purchase module 12
1.9.2 Diagram showing Purchasing general process 16
1.9.3 Diagram showing RFQ and quotation process 17
1.9.4 Diagram showing purchase requisition process 18
1.9.5 Diagram showing blanket agreement process 21
1.9.6 Diagram showing blanket release process 22
1.9.7 Diagram showing amendment process for blanketpurchase and release
23
1.9.8 Diagram showing receipts 24
1.9.9 Diagram showing GI rejection 26
1.9.10 Diagram showing line rejection 271.9.11 Diagram showing outside processing 29
1.9.12 Diagram showing internal requisition 30
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ABSTRACT
The study was undertaken to determine EFFECTIVENESS OF MATERIAL
REQUIREMENT PLANNING (MRP) IN PURCHASEDEPARTMENT IN SIMPSON & CO Ltd., Chennai.
Among the various systems which are available, the most sought after or probably the
highly opted ones are the material requirements planning (MRP). This study explores the
reasons why organizations chose to use these systems, the problems and benefits derived
from the MRP/ERP systems, and the characteristics of the types of companies that have
benefited from the use of MRP-type systems. It also figures out the factors which make
the MRP effective so that its benefits are utilized to the maximum. The study reveals
what factors will cause the effective functioning of the MRP during its usage. While most
ompanies use MRP or ERP computer system in manufacturing functions this study will
loosely refer to these computer systems as MRP- type or simply MRP systems.
The study undertaken strikes to procure an insight about the effectiveness of the MRP in
purchase department in simpson & co ltd. The population consisted of employees of the
purchase department and size of population includes 20 employees. The questionnaire
were provided to 20 employees of the purchase department. Based on the feedback, the
required study was carries out. A major finding of the study is that the employees were
comfortable with the major part of the MRP system and just needed few additional
features for better working.
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1.1. INDUSTRY PROFILE
The automotive industry designs, develops, manufactures, markets, and sells the
world's motor vehicles. The automotive industry is one of the most important economic
sectors by revenue.
The Automobile industry in India is the seventh largest in the world with an annual
production of over 2.6 million units in 2009.In 2009, India emerged asAsia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand. By 2050, the
country is expected to top the world in car volumes with approximately 611 million
vehicles on the nation's roads.
Following economic liberalization in India in 1991, the Indian automotive industry has
demonstrated sustained growth as a result of increased competitiveness and relaxed
restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti
Suzuki and Mahindra and Mahindra, expanded their domestic and international
operations. India's robust economic growth led to the further expansion of its domestic
automobile market which attracted significant India-specific investment by
multinational automobile manufacturers. In February 2009, monthly sales of passenger
cars in India exceeded 100,000 units.
India has emerged as one of the world's largest manufacturers of small cars. According
to New York Times, India's strong engineering base and expertise in the manufacturing
of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of
several automobile companies like hyundai
Motors, Nissan, Toyota, Volkswagen and Suzuki.
In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan
Motors plans to export 250,000 vehicles manufactured in its India plant by
2011.[8] Similarly, General Motors announced its plans to export about 50,000 cars
manufactured in India by 2011.
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In September 2009, Ford Motors announced its plans to setup a plant in India with an
annual capacity of 250,000 cars for US$500 million. The cars will be manufactured both
for the Indian market and for export. The company said that the plant was a part of its
plan to make India the hub for its global production business.[11] Fiat also announced
that it would source more than US$1 billion worth auto components from India.
The automotive industry is no stranger to change. Many of the changes occurring in the
global marketplace today - tightened credit markets in a capital-intensive industry,
declining consumer confidence, increased government involvement - are the most recent
manifestations of this reality.
The combination of these new realities with familiar industry challenges such as volatile
raw materials costs and fuel prices, tighter regulations, capacity and sourcing challenges
and the need to satisfy consumer demand for cleaner, greener cars, have combined to
create a business environment that has had a profound effect on the global automotive
industry.
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1.2. Company profile
In 1840, Mr. Simpson, a Scotsman, foresaw potential in developing India as a major
centre for building coaches and carriages. With a little spirit he nudged his dream and
Simpson & Co was born. Simpson became a pioneer in railway coaches, motor cars,
steam passenger buses, public service vehicles... India's Road Transport Industry was
ushered into a new era.
Simpsons became the first to recognise the potential of diesel as a fuel, and self started
the diesel era in the country in 1951. And in 1955, Simpsons became the first Indian
Company to indigenously manufacture diesel engines for surface transport vechicles.
Simpsons is the first Indian Company to indigenously manufacture diesel engines for
surface transport vechicles.
SIMPSONS WORK POLICY:
It is our policy to attain and maintain leadership in the market. We serve by providing
products and services which meet and exceed customer satisfaction ,expectation and
statutory and regulatory requirements with emphasis on continual improvement in all our
procees and with total commottment and involvement of all employees
PRODUCTS AND SERVICES:
Agriculture Application Engines
Gensets Application Engines
Industrial Application Engines
Marine Application Engines
VehicularApplication Engines
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1.3. Need for the study
The need for the study is to find out the effectiveness and usefulness of the materials
requirement planning which is used in Simpson & co ltd. It brings out an overall idea of
how effective is the materials requirement planning for production activity. With other
automotive companies coming out with new options to attract customers with main
concern on time and quality, the challenge of retaining the existing customers and
satisfying the same has become a top reference.
The main need for carrying out this study is to find out how much useful is the materials
requirement planning for employees working in Simpson & co ltd. How the materials
requirement planning helps them to carry out the work effectively without any hitchesand error. What can be done in order to make the materials requirement planning more
effective so that the raw materials come on time, the manufacturing process goes on
smoothly and the engines are delivered on time to the customer.
.
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1.4. SCOPE OF THE STUDY
The study reveals the employees preference, their needs, that is what they need in order
to make the material resource planning effective, how the material resource planning can
be effectively used in other departments of the company also. The number of respondents
includes only employees of purchase department. The study also covers the employees
awareness about materials resource planning and how to use them, factors influencing
them to use material resource planning and their most preferred options in material
resource planning. To maintain uniform levels in all levels of purchase department and
also to communicate effectively to vendor.
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1.5. OBJECTIVES
Primary Objective:
To understand how material resource planning process is implemented in the
company and to find out how effectively it is used.
Secondary Objective:
To bring out the features of materials resource planning.
To find out how effectively purchase can be done.
To find out what enhancements are required to improve the material resource
planning.
To find out the whether the information available in the MRP system is relevant
for making decisions.
To find out whether MRP software is reliable.
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1.7. LIMITATIONS OF THE STUDY
This study focuses only on the employee base of Simpson & co ltd. in Anna salaiplant Chennai and it is about the effectiveness of the material requirementplanning used in the plant.
The study does not provide a reliable source for judging the employee suggestionas it covers only 20 employees from the over all population.
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1.6. MATERIAL REQUIREMENT PLANNING
Materials requirements planning (MRP) is the logic (software system) for
determining the number of parts, components, and materials needed to produce a
product.
MRP provides time scheduling information specifying when each of the
materials, parts, and components should be ordered or produced. Based on
imputed FIXED LTs
Dependent demand drives MRP.
Example of MRP Logic and Product Structure Tree:
Given the product structure tree for A and the lead time and demand
information below, provide a materials requirements plan that defines
the number of units of each component and when they will be needed.
Product Structure Tree for Assembly A
8
E 1D 2 F 2D 3
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First, the number of units of A are scheduled backwards to allow for their lead time.
So, in the materials requirement plan below, we have to place an order for 50 units of
A in the 9th day to receive them in the 10th day.
L
LT = 1 DAY
Next, we need to start scheduling the components that make up A. In the case of
component B we need 4 Bs for each A. Since we need 50 As, that means 4x50 Bs.
Back the schedule up for the necessary 2 days of lead time.
9
Lead TimesB 2 daysC 1 dayD 3 days
E 4 daysF 1 day
DemandDay 10 50 ADay 8 20 B (Spares)Day 6 15 D (Spares)
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
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Finally, repeating the process for all components, we have the final materialsrequirements plan
10
Day: 1 2 3 4 5 6 7 8 9 10
A Required
Order Placement 50
B Required 20 200
Order Placement 20 200
SparesLT = 2
B(4)
E(1)D(2)
C(2)
F(2)D(3)
A
Day: 1 2 3 4 5 6 7 8 9 10 A Required
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200
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Types of Time Fences
Frozen
No schedule changes allowed within this window.
Moderately Firm
Specific changes allowed within product groups as long as parts are
available.
Flexible
Significant variation allowed as long as overall capacity requirements
remain at the same levels.
11
1 2 13Weeks
FrozenModerately
FirmFlexible
Firm Customer Orders
Forecast and available
capacity
Capacity
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1.7. Material Requirements Planning System
Based on forecasts & customer orders a Material Requirements Planning
system: Creates schedules identifying the specific parts and materials required to
produce end items.
Determines exact unit numbers needed.
Determines the dates when orders for those materials should be released,
based on lead times.
Purchase Module
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1.8. VARIOUS PROCESSES
Introduction:
Purchasing in Simpson can be classified as OE components, Tools and Machine Spares,
Consumables, PMD Components , Branch local items , Engine job work (Cummins) and
Capital Items.
Purchasing includes all activities starting from Raising Indents, Approved SupplierList,
Sourcing rules, RFQ, Quotation, Creating, Amending and canceling Purchase
Orders(Standard, Blanket agreements and Blanket release), managing the Suppliers and
conducting analysis of purchase activities.
Purchasing activities are done atA
nnasalai ,Sembiam, Pmd, Cummins(CUB),Bangalore,Hyderabad,Trichy,Ooty organizations.
Depending on the type of Purchase items the Purchase Orders may be classified into
Standard Purchase order for OE components, Tools & M/C spares consumables,Capital
Items.
Blanket Purchase order for OE Components
Standard Purchase Order for Imported items.(Volvo, Tools & M/C spares and others)
Purchase Order for Outside Processing
The Detailed procedures followed in various Purchase departments are given below:
1.OE Components :
The Requirement is derived from Engg Department (New Components, Marketing
Department (Sales Plan) and consolidated through MRP to arrive at the actual Purchase
requirement. For New development components the engineering drawing is sent to
vendor development department with ECO to develop new vendors. They in turn get the
quotation from multiple suppliers and based on selection criteria vendors are short Listed.
For the New Vendors quotation is created and attached to ASL.The Standard Purchase
Order is created for getting sample items. The sample item is inspected assembled and
tested by production and quality departments. Once it is fully approved, the STA
department approves and implement the ECO. From that point onwards regular
procurement and production is started. For regular item the component price is amended
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after price negotiation with retrospective effect. For SSI suppliers the ED rates are also
amended in quotation based on the supplier turn over.
Quotation are maintained at organization level which means a vendor will have three
quotation for supplying the same item to three different locations.
2.Tools,M/C spares and Consumables:
Purchase requirements is received from various MFG departments through
Purchase indents(Manual).Tools are procured for old line, New Line and SJ3 line in the
shop floor.The production plan determines the tool requirement and planning is based on
tool life(For New line,SJ3) or min Max (Old Line). M/C spares and consumables are
procured on need basis as and when required by the shop floor. Both tools and M/C
spares can be either stocked or directly consumed.
Quotations are created for all the items based on market price and price amendments are
carried out as required.
3.P.M.D Purchase:
The part sale during the previous year forms the basis of requirement in P.M.D
department. The vendor base for O.E. components and P.M.D purchases are one and the
same, but the quotation price for parts department will be higher than OE rate. Price
amendments are similar to O.E.Components
4.Kits / Labour only engines Purchases: .
Engine components are received as KIT assemblies from Cummins B5.9 and
assembled in Simpsons. The kits are received thru 57F4 excise form and returned as
finished engines. Labour invoice is prepared for the same.
5.Capital Purchases:
Capital item purchase for plant and machinery and special projects are controlled
by Projects department. The process for imports is similar to Volvo Purchase. The Asset
purchases are not integrated to F.A. Module in E.R.P currently.
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PURCHASE SETUP ORGANIZATION WISE
Activity ASP SMP PMD Branch KMP
Types Of Purchase
OE 3 3 3 3 2Tools/Spare/Consumables
3 3 2 2Only
Consumables
OSP 3 3 2 2 2
Imports 3 3 3 2 2
Types of Purchase Documents
Blanket PO, Releasethru MRP
3 3 3 2 2
Standard PO 3 3 3 3 3
Inter Plant Transfers
STV 3 3 3 3 2
Purchasing Hierachy
Hierarchy 3 3 3 3 2
Supplier Master Maintenance
ItemCatalog
3 3 3 3 2
ASL 3 3 3 2 2
SourcingRule
3 3 3 2 2
Tax - ItemCategory
3 3 3 3 3
Note :Tax Category is defined at IMO organization level.
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Purchasing General Process:
Manage
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Manage Qo
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Non-Apps
The purchasing activity is decentralized and managed at ASP, SMP and PMD locations
independently. The vendor base may be common or different across the different
locations.
There is a separate approval hierarchy for each organization with approval limits clearly
defined.
The components purchased will be of the following types:1.OE Components
2.Tools
3.Machinery Spares
4.Consumables
5.Capital Items 16
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PMD parts
Imported items
The buyers are allocated for each vendor/item at the Organization/Item master level and
the approval rules for Blanket order, Blanket Release, Standard PO and Purchase
requisition is configured.
The quotations forASP/SMP plant are managed at ASP material control department
while PMD quotations are managed by themselves. There is no approval hierarchy for
Quotations.
RFQ and Quotation Process (OE-New component Development)
RFQ Process for OE - For New ComponentDevelopment
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Description:
The Current RFQ process is used only for Newly developed components. The
development of the vendor/item is outside the system and the quotation is finalized based
on the vendor quality and terms and conditions.
For existing items the Quotation is maintained organization level for all the vendors. It is
updated during price revision or tax changes and is used in MRP process to raise blanket
agreement and also in Standard PO thru Catalog.
Purchase Requisition process (Tools and M/c Spares)
18
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Description:
Two types of materials are purchased under Tools and Machinery spares. One is
stockable and another one is direct debits ( issued to works as a expense).
Purchase Requisition of Oracle is not currently used. The Manual Purchase requisition is
collected and pooled into a single Standard Purchase order.This is done for Machine
Spares/Tools/Consumables,Asset and Capital Items and Contractual Purchase.
The possibility of using Purchase requisition in Oracle Apps has to be explored. A new
approval hierarchy would be required in that case.
1. BLANKET AGREEMENT :
A blanket agreement is released every 6 months from ASP/SMP/PMD plants to all the
vendors for components purchase. This is based on the sales/production plan from the
marketing department. The total value of purchase is approved thru the Finance
committee and a Purchase Order is printed and sent to all suppliers.
The actual process is done in MRP module and is explained in detail in the process flow
chart attached above.
The sourcing rule is used extensively in the process and the latest quotation is picked up
for each vendor and updated in the Sourcing rule which is picked up by the MRP process.
The machine shop at ASP and SMP plants cater to the assembly line of both the plants.
The production requirement of the other plant is fed into MRP and Internal sales orders
are generated for transfer of material.
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2. BLANKET RELEASE :
Blanket release is done every month, based on the firm sales plan from marketing
department This forms the daily delivery schedule for the supplier and a daily
requirement statement is sent to all the suppliers with reference to the blanket agreement.
For blanket release process, the blanket agreement number is updated in the Sourcing rule
thru a concurrent program and MRP is run to generate releases.
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Updati0 1
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34
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an
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ucket TypePeriod
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Populating Tax InformationForA
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Blanket Release
Updation of ASL with
Quotation Process
For ASP/SMP Actual Sales Plan
given by Marketing on 20th of
every month forthe first fifteen
days of nextMonth
Loading the ForecastPlan.
Inputthe Plan Manually using
the Bucket Type -Daily
STV Demand for other
Orgs SMP/PMD/ASP
Copy the ForecastPlan as a
Demand and also copy Other
Organization STV Demand
Launch MRPProcess
ForPMD Pending Sale Order
Quantity is derived for 6 months
then arrive average Qty/Month
(Customized Report)
Loading ForecastPlan
Via Interface Process
Launch MRP
Create BlanketPurchase Release
Create Release Process
System Generates Concurrent Blanket
Release For each Item Vendorwise
Create Release Order Document
Create Vendor Schedule Statement
Send Purchase Agreement
To Vendor
Bl n et Rele se Process For OE t A P/ MP/PMD Or niz tion(Process is one t Or niz tion Level)
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Amendment Process for Blanket Agreement and Release
Quae
tityf
g h
ed
g h
et
ir
p
q
h
r rf
p
rBlae
kh
t
fgr
h h g h
et & Bla
ek
h
t rh
lh
ar
h
Checks
lanketOrderor
t
eleaseOrder
PriceAmendmentinQuotation
TaxStructureChanges
Includingu
ew Items /u
on
Processed ItemthroughMt
P(
t
equisitioncreatgedv
ut
BlanketPOnotgenerated)
Increase inOrderValue
Processed
BlanketPO
(Open)
ForwardtoApproval
Hierarchy
PriceamendmentinQuotation
TaxChangeQuantity
Amendment
Processed
ReleaseOrder
(Open)
Createnew
ReleaseOrder fo
rtheItem intheOpenBlanketPO
Approvedv
yDGM(Materials)
ReleaseOrder
Blanket
Forwardtonext
Hierarchy
ForwardtoFCB
forApproval
ApprovedOrder
1. Rate Amendments:
When there is a price revision , Quotation Price is amended with price break(for keeping
history) at each organization level for a vendor/item.
For Blanket order the price is applied from catalog manually and taxes are re-applied.The
P.O is sent for approval when the rate is increased.
For Blanket releases the existing releases cannot be corrected. A new release is done
throughA
uto create from Blanket P.O.For standard P.O catlog is re-applied and sent for approval.
2.Quantity Amendments:
Quantity amendments are done in the blanket releases and standard P.O .No approval is
required when the release value is within the blanket order value.
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Quantity amendments are done whenever the supply schedules are not following the
agreed schedules due to various reasons like line changes, insufficient supplier capacity,
short supply and rejections.
Receipts
Receiw
tx
ry
cess fy
r
components,ools,
/
Spares &
nsumables -
Sx, S
x,
x
ReceiveMaterialat
Gate
No
Check TaxStructureand
Matchwiththe
Supplier Invoice
Vendor
CreateReceiptG1Document (using
parameters supplierand
Item, notconsideringOrders)
Check allopenoredrs
(Blanket release
Orders / StandardPOs)
SelectPO (Match
Orderquantitywith
supply)
SembiumMaterial IfSupplyQuantity is