project iimm 2011 1 lokesh

8/3/2019 Project Iimm 2011 1 Lokesh

http://slidepdf.com/reader/full/project-iimm-2011-1-lokesh 1/86

PROJECT ON

PURCHASE PROCEDURE AND

SYSTEMSCARRIED OUT AT

HINDUSTAN AERONAUTICS LIMITED

AIRCRAFT DIVISION

BANGALORE: 560 017

Report submitted for the requirement of

Post Graduation Diploma in Materials Management of

INDIAN INSTITUTE OF MATERIALS MANAGEMENT

2011 -2012

LOKESH B.R

ROLL No: CP/2009/1503338/BG

Under the Guidance of

Sri Manjunath setty T

Senior Manager

1



DECLERATION BY STUDENT

This is to state that the project titled PURCHAE

PROCEDURES AND SYSTES is base on the original

work Carried out by me under the valuable guidance

of Sri. Manjunath setty T, Senior Manager

towards the requirement for Post Graduation Diploma

in Materials Management of Indian Institute of Materials Management. This has not been submitted

in part or full towards any other degree of other

Course

Date:

Place: Bangalore

(Lokesh.B.R)

Roll No: CP/2009/1503338/BG

2



CERTIFICATE FROM THE GUIDE

This is to certify that the project work titled Purchase

Procedure and Systems is a bonafide work carried out

by Mr. Lokesh.B.R Roll No: CP/2009/1503338/BG

candidate for the Post Graduate Diploma Examination

of the Indian Institute of Material Management Under

my guidance and direction

Signature of the Guide :

Name and Designation : Sri. Manjunath setty T

Senior Manager

(Purchase)

Address : M/s. Hindustan

Aeronautics Ltd.,

Bangalore Complex

Aircraft DivisionPost Bag No: 1788

Bangalore: 560 017

3



Date:

Place: Bangalore

ACKNOWLEDGEMENTMy Sincere thanks to Sri. Manjunath Setty, Senior

Manager , Aircraft Division, for having given me an

opportunity to do this project report and also for his

valuable guidance and encouragement given forpreparing this report .

I extend my sincere thanks and regards to the staff of

M/s Hindustan Aeronautics Limited. Aircraft Division,

For helping me by giving their valuable time and

suggestions and innovative ideas to complete my

project.

Last but not the least I thank the faculties and staff of

Indian Institute of Materials Management, Bangalore

for helping me to complete this project by their

valuable guidance and support.

(Lokesh B.R)

Roll No: CP/2009/1503338/BG

4



CONTENTS

SlNo ChapterNo Description PgNo

1 I INTRODUCTION 7 - 15

2 II OBJECTIVES 17-18

3 III PURCHASE FUNCTIONS 20-23

4 IV PRODUCT PORT FOLIO 25

5 V CLASSIFICATION OF MATERIALS 27-29

6 VI MODES OF TENDERING 31-35

7 VII PURCHASE ENQUIRY 37-40

8 VIII PURCHASE PROGRESSION 42-44

9 IX VENDOR SOURCE SELECTION 46-48

10 X PURCHASE ORDER GENERATION 50-60

11 XI ETHICS OF PURCHASING 62

12 XII OBSERVATIONS 64

13 XIII SUGGETIONS 66

14 XIV CONCLUSION 68

5



15 XV FLOW CHART 70-71

16 XVI ANNEXURES 73-82

6



INTRODUCTION

COMPANY VISION

TO BECOME A SIGNIFICANT GLOBAL PLAYER IN THE

AEROSPACE INDUSTRY

COMPANY MISSION

To become a global competitive aerospace industry,

while working as an instrument for achieving self-

reliance in design, manufacture and maintenance of

aerospace defence equipment and diversifying to

related areas, managing the business on commercial

lines in a climate of growing professional

competence.

COMPAY VALUES

Customer Satisfaction

Cost and Time Consciousness

Trust and Team Spirit

Integrity

Commitment to Total Quality

7



Innovation and Creativity

Respect for the Individual

COMPANY STATUS

Navarathana Company since 2007

34th among Global Defence Companies

19 production and 10 R and D Centers

36,150 workforce

ISO-9001, AS-100,NADCAPCertification

8



DIVISIONS OF HAL

BANGALORE COMPLEX

Aircraft Division

Engine Division Indy and Marine Gas Turbine (IMGT)

Overhaul Division

Aerospace Division

Foundry and Forge Division

Airport Service Centre

Central Material and Processes Laboratory

MIG COMPLEX

Aircraft Division Nasik

Aircraft Overhaul Division, Nasik

Engine Division, Koraput

Sukhoi Engine Division, Koraput

Aircraft Upgrade R and D Centre, Nasik

Gas Turbine R and D Centre, Koraput

DESIGN COMPLES

Aircraft R and D Centre

9



Mission and Combat System R and D Centre

Engine Test Bed R and D Centre

HELICOPTER COMPLEX

Rotary Wing R and D Centre

Helicopter Division

Helicopter MRO Division

Barrack pore Division

Composite Mfg Division

Accessories complex

Transport Aircraft Division (TAD), Kanpur

Accessories Division, Lucknow

Avionics Division, Hyderabad

Avionics Division, Korwa

Aircraft Systems and Eqpt R and D Centre, Lucknow

Strategic Electronics R and D Centre, Hyderabad

Transport Aircraft R and D Centre, Kanpur

Hindustan Aeronautics Limited., Known as HAL is a

public

sector Undertaking under Government of India Ministry of

Defence

10



Founded as a Private Limited Company in Bangalore in

December 1940 for Repair and Overhaul of military aircrafts

and engines to support the Second World War efforts, HAL

has now grown into Asia’s premier aerospace company,

today HAL, Continues to scale greater heights whilepioneering new technologies with a Focus on cutting edge

innovation, creativity and design, with its corporate Office at

Bangalore.

The company has 19 production divisions and 9 R and D

Centers spread over 7 different locations across the country.

Its product track

records consist of 12 types of aircraft from in house research

and

development and 14 types by license production. HAL has so

far

produced about 3550 aircraft, 3,600 aero engines and

overhauled over

8,150 aircraft and 27,300 engines. The company has also

achieved a

foothold in export in more than 30 countries, havingdemonstrated its

quality and price competitiveness.

HAL has spread it wings to cover various activities in the

areas of Design, Development, manufacture, and

11



maintenance of advanced fighter trainers, helicopter,

transport aircraft accessories, avionics and it has also

diversified in to manufacture of structure for aerospace

vehicles like Polar/Geostationary

Satellite Launch Vehicle, Indian Remote sensing and other

satellites, Industrial and Marine gas turbines as well as

commercial services.

The company has been making steady growth in financial

term over the year. The company continues to enjoy the

highest Credit Rating by CRISIL and ICRA for short term and

long term debt programs.

Key trust areas of the company are R and D, Customer

Services, Quality, Outsourcing, Export and Strategic alliances

with global aerospace companies.

12



All the production division of HAL have ISO 9001-2000

accreditations and ISO 14000-1996 Environmental

Management Systems Certification. The Company has also

embarked on Lean Management philosophy and enterprise

wide resources planning techniques for achieving a high level

of operational excellence and productivity.

The company has formulated a perspective plans

considering the medium term requirement of the Indian

Defence Service, the major customer of the company

MAJOR CUSTOMERS OF THE COMPANY

DOMESTIC

Indian Air Force

13



Indian Navy

Indian Coast Guard

DRDO

ISRO

BEL

NAL

MAJOR CUSTOMERS OF THE COMPANY

14



INTERNATIONAL

AIR BUS, FRANCE

IAI, ISRAEL

BOEING, U.S.A

BAE SYSTEM U.K

BEL HELICOPTER, U.S.A

RAFO, OMAN

AIR MAURITIUS

AIR LINE OPERATORS IN SOUTH

ASIAN COUNTRIES

MAJOR PRODUCTS OF THE COMPANY

KIRAN AIRCRAFT

15



JAGUAR AIRCRAFT

HAWK AIRCRAFT

LIFHT COMBACT AIRCRAFT (LCA)

INTERMEDIATE JET TRAINER (IJT)

POILET LESS TARGET AIRCRAFT (PTA) LAKSHA

PASSANGER DOORS FOR A 320 AIRCRAFT

LANDING GEAR UP LOCK BOX FOR BOEING 777

AIRCRAFT

G 150 FUSELAGE ASSEMBLY

CARGO DOORS FOR BOEING 737 TO IAI

CARGO CONVERTION KIT FOR IAI

16



CHAPTER – II

OBJECTIVES:

a. To ensure uninterrupted timely flow of materials,

equipment and services of goods of required

quality to meet and support production plans and

other retirements of internal and external

customers.

17



b. To buy competitively and wisely authorize

supplies to desire specifications from approved /

reliable sources at the available optimum price

with in the time schedule to support productionpans and other requirement.

c. To ensure that fair and open purchase practices

are followed and a healthy and good relationship

develops with suppliers to fosters the commercial

interest of the company.

d. To ensure timely formation and commitment of

purchase budget including foreign exchange

requirements

e. To serve as information center on materialsknowledge, price, sources of supply specification

etc.,

f. To ensure that invest made on inventory is at an

optimum level and continuously strive for

reduction in material costs, capital costs and

overhead expenses. Develop sources of supply to

maintain competition and sustained supplied.

g. Training of purchase personnel in the latest

techniques of materials management.

h. To keep management appraised of the likely

shortfalls in purchase performance by

18



introducing appropriate reporting systems with a

view to seek management’s invention in time.

i. To adhere to commercial procedures and

maintain cannons of financial propriety tosafeguard economic, legal and other interests of

company

j. Maintain and improve the quality of materials

procured. Lay emphasis on quality management

19



CHAPTER – III

PURCHASE FUNCTIONSDuties & Responsibilities of Materials

Management

Material Planning & control:

a. Timely provisioning of materials and raise

demands in appropriate Performa (MPR/RR’S)

considering production program, bill of

materials, available stock, dues in, production

allowances, contingency, shelf life,

procurement lead time based on stage of

build/structural breakdown and other factorslike indigenization plan Ect.,

b. Follow up for progression of MPRs.

c. Liaise with related departments like design,

methods for updated documents.

d. Authorize issue of materials

e. Liaise with shop engineering for day-to-day

production problems relating to materials.

f. Inventory control and analysis

20



g. Review of slow moving / non-moving stocks

and takes corrective action including disposal.

Purchase Department is responsible for the

following functions:-

A.Creation of a comprehensive and

continuously updated register of theselected reliable vendors.

B.Maintenance of the Vendor evaluation and

rating records.

C.Market survey with a view to establishing /

developing new reliable and better sources

of supply by providing information on latest

procedures and developments.

D.Preparation of RFQ and tendering

E. Analyzing bids / offers for decision making

by the competent authority

21



F. Arranging negotiations with the parties

whenever necessary.

G.Issue of purchase orders in time.

H.Keeping watch on trends in foreign exchange

rate variations and obtaining timely release

of FE, obtaining technical clearance and

import License when required.

I. Follow up of purchase orders till the arrival

of the materials at destination.

J. Maintaining a library of the product

catalogues and manufactures distributor’s

price list.

K.Maintaining update information about sales

tax excise and custom duty rates.

L. Submit MIS reports on the performance of

the purchase organization.

M. Entering into service contracts for

transportations, Printing, Packing,

maintenance services contracts, material

handling.

N.Entering into transit insurance agreement for

Goods in transit.

22



O.Entering into contracts for sub-contracting

prototype development, trial orders etc.,

P. Finalization and operation of the license

agreements.

Q.To ensure that objective of the Purchase

realized and exceptional cases are broughtto the notice of the divisional heads

/management.

R.To be alert about the responsive to the

changes in the Production Program and

change in requirement of the materials.

S. To ensure timely payments to suppliers. T. Maintaining records of price escalation

formula for various categories of materials

and price trends in the market.

23



24



MAJOR PRODUCTS OF THE COMPANY

KIRAN AIRCRAFT

JAGUAR AIRCRAFT

HAWK AIRCRAFT

LIFHT COMBACT AIRCRAFT (LCA)

INTERMEDIATE JET TRAINER (IJT)

POILET LESS TARGET AIRCRAFT (PTA) LAKSHA

PASSANGER DOORS FOR A 320 AIRCRAFT

LANDING GEAR UP LOCK BOX FOR BOEING 777

AIRCRAFT

G 150 FUSELAGE ASSEMBLY

CARGO DOORS FOR BOEING 737 TO IAI

CARGO CONVERTION KIT FOR IAI

25



26



CHAPTER – V

CLASSIFICATION OF MATERIALS

For efficient purchasing it is necessary that the

relevant classification of materials are properly

understood so that suitable purchasing methods

may be adopted for the purchase action.

A.CAPITAL EQUIPMENT:-

Capital equipment consists of machine

tools, plant, test equipment, office equipment

workshop/office furniture, vehicles etc. The

requirements of capital items for the divisions

are sanctioned by the Board in the annualCapital Budget. Purchase department is

responsible for ensuring timely commitment of

the annual purchase department, should draw

up a detailed plan to meet the commitments.

The purchase department should also actively

associate itself with the Technical wing in

drawing up specifications/details of

requirements including after sales services,

spare parts holding policy and training of

maintenance engineers. Capital purchase

requests are to be raised by the chief

production Engineer/Authorized officer.

27



Purchase of capital equipment shall be done by

Limited/open tendering as per guidelines in the

delegation of financial power.

B.PRODUCTION MATERIAL:-

Production materials are those, which

are directly consumed in production. These are

raw materials, consumables, components,

spares and accessories, casting and Forgings

etc., which into themanufacture/repair/overhaul of

Aircraft/Engines and other systems. The bulk of

the production materials and these are

required to be purchased only from firms who

are borne on the current approved list of firms

issued by the airworthiness certificate bearing

the signature of an approved inspectionauthority. Therefore, the most appropriate

mode of purchase for bonded aero material will

be generally limited tendering. The

requirement of production material purchase is

linked with the production programme of the

company and material purchase requests are

to be raised by material controller/planningdepartment.

C.COMMERCIAL MATERIALS / OVERHEAD

MATERIALS:-

28



Al other types of materials which are not

directly used in production but are required for

the production process / or functioning of the

organization are classified as overheadmaterials / commercial materials.

D.MISCEANEOUS:-

In respect of items which are not

covered above materials purchase requests

shall be raised by the head of the userdepartment as per fixed delegation or

authority by the head of the division.

29



30



CHAPTER-VI

MODES OF TENDERING:

Open Tendering:

Open/Public tendering is a system whereby

even non-registered dealers are free to

participate. Under this system all the known

and possible sources for the supply of the

requirements and allowed to quote. To this

end, one of the followed methods shall be

adopted.

a) Giving an advertisement in at least

three leading English languagenewspapers of all India circulation and

where time permits, also in the Indian

trade journal / Indian Export, Service

Bulletin (IESB). Simultaneously copies of

31



the advertisement may be sent to all the

known and likely sources.

b) Addressing all the known and likely

sources for a particular product.

c) The complete bid documents

along with application form shall be

published on web site. It should be

ensured that, there is no necessity for

prospective bidders to ask obtains someother related documents

from the department manually for

participation in the tender process. i.e.

all documents up t date are and remain

available as equally legally valid for

participation in the tender process as

manual documents obtained from the

department through manual process.

Any exceptions, such as part drawings

d) Lofts or quality documents, which

form part of tender documents but

cannot be placed on web site for

reasons to be recorded, must beapproved by general Manager.

e) A mention of such documents must

be on the web site notice and

intending bidders be asked to obtain

32



documents by a written request, by post

by hand, before a specified date.

f) The complete application form

should be available on the web site, tilllast date of submission of tenders, for

purposes of downloading and

application made on such a form shall

be considered valid for participating in

the tender process.

g) Request for proposals for non-lethal

items (i.e. items not connected with any

warfare) will also be published on MOD

Website.

h) The web site address must be given

in the advertisement notice inviting

tender (NIT) published in the

newspapers along with e-mail address

of the Division office.

i) In case, it is considered necessary

to charge for the application form

downloaded from the computer then the

bidding party may be asked on the web

site to pay the amount by draft/cheques

33



etc, at time of submission of the

application form and bid documents.

Global Tendering:

Global Tendering is same as open

tendering expect where items to be procured are

not indigenously available. Advertisements may

be released in leading National Newspapers as

well as in the Indian Trade Journal / Indian Export

Services Bulletin. In addition, copies of the tenderdocuments may be made available to the Indian

Embassies in potential vendor

Countries abroad for issuing to the tenders

beside making the documents available to the

trade commissioners of Foreign Embassies in

India and HAL Resident Managers outside India

Limited Tender:

In limited tender, only the most

likely and suitable sources are addressed. To

invite adequate competition, it is necessary that

at least five sources of supply are addressed.

Where the number of available sources of supply

is less than as specified, the number of suppliers

to be addressed may be reduced at the

discretion of the general Manager. Wherever

34



available, evaluated vendor lists maintained by

the division shall be used. In other cases, the list

of suppliers shall be carefully made based on

vendor rating or past experience. It is preferableto include the name of last suppliers also.

Single Tender:

When the purchase is finalized on the

basis of a single offer or an offer from a single

source is invited, this called a ‘Single TenderPurchase’. It needs to be recognized that the

competition is totally eliminated and the

possibility of paying higher prices cannot be

ruled out. It is imperative that the purchase on

single tender basis be made with the detailed

justification in its support and with the approval

of competent authority, including associated

finance. In a number of cases, the specifications

prepared are copied from a manufacturer’s

catalogue in such a detail as to exclude

competition and result in a single source

purchase. The specifications of the equipment

need to be prepared in such manner as to give

very essential requirements leaving other

parameters as “Desirable” or “Preferred”

35



Proprietary Tender:

This is a tender which is addressed

only to a proprietary manufacturer his authorized

agent because no equivalent or near equivalent

is available from any other source and all

possible suppliers quote only the product of one

manufacturer.

Spot Tendering:

Spot tendering is to be resortedonly for emergent requirements. All the readilyapproachable and well-known vendors are requestedto assemble and their offers are obtained after theirrequirement is explained/shown to them on spot. In

case this is not possible to arrange for the suppliersto assemble at one place, then a team of officerscomprising of representatives from the Purchase,Finance and the User department accompanied by anInspection Officer, where necessary, shall proceed tomarket and obtain spot offers from vendors afterphysically verifying and inspecting the goods andobtaining the assurance that items are offered ex-

stock.

36



CHAPTER-VII

37



PURCHASE ENQUIRY

A letter/ Telephonic/ Fax offers received in the timemay be considered. Such letters or quotations are

complete in all respects with regards to pricespecifications delivery and other particulars essentialfor taking purchase Decision.

A)The enquiry/tender shall indicate full descriptionand specifications of the required material.

B)Drawings, wherever available, shall be sent along

with the enquiry/tender.

C)Enquiry or Tender must be invited to standardspecifications as far as possible. Under nocircumstance, terminology such as “bestquality”,” commercial quantity” or” as perprevious supply” etc. Shall be used.

D)In case where no drawing is available and whichcannot be correctly described, a sample is to beshown t the vendors or they may se requested tosubmit their own samples.

E)In cases where HAL reserves the option to supplymaterial, the firms may be asked to givealternative offers with their own supply of

materials and with HAL supplied material.

F)Delivery expected shall be realistic andspecifically indicated. (Words like“Urgent/”Immediate” are to be avoided). In orderto meet the project requirement, it would beprudent to incorporate an acceptable range of

38



delivery period with the stipulation that no creditwill be given for earlier deliveries and offers withdelivery beyond the acceptable. Range will betreated as unresponsive.

G)In case quantity required is not readily marketed,Minimum Order Quantity stipulation shall berequested in tender enquiry.

H) Clauses relating to Earnest money, if called for,Delivery Schedule, Payment terms,Performance/Warranty Bank Guarantee, Pre-dispatch inspection, Arbitration, LiquidatedDamages/Penalty for the delayed supplies andRisk-purchase etc. must be incorporated in thebid/enquiry documents.

I) It should be made clear in bid documents thatconditional discounts shall not be considered inevaluation of tenders.

J) All requests for quotations/tender enquiry must

specify:” Last date for submission of Quotes”. The tender must also state “Tenders receivedafter due date and time shall not be opened andshall not be considered.” This should beprominently mentioned in the tender enquiry. Incases where Bidders representative are required

to be offered to witness tender opening date andtime of opening the tender shall be mentioned inthe tender/enquiry

39



k) A clause in the tender/enquiry shall be includedstating that HAL will not be responsible for the lossor delay in receipt of tender documents/ tender intransit. HAL reserves the right to reject

late/incomplete tenders.

l) The exemptions/relaxations applicable toSSI’s ancillary units, PSU’s should be specified in thetender notice (in line with prevailing Govt. Directives)

m) In order to ensure that enquiries are sent tothe right source, the purchase groups shall use the

approved Supplier’ List both for imported andindigenous purchases. It shall be the responsibility of the Head IMM department to ensure periodicalupdating of this list.

Basic Price and the quantities for which it is valid.Also whether the price is firm and or anyescalation formula is offered.

1.Sales Tax, Excise Duty and other terms andconditions.

2.Terms of delivery: Ex-Works/Factory andother terms and conditions.

3. Packing and forwarding charges.4. The terms of payment5. Assurance to replace defective supplies.

6. Validity Period is adequate.

Utmost care shall be exercised while preparingthe comparative price statement. The purchaseAssistant who has prepared the statement shallbe vetted and counter signed by an officer of thepurchase department shall sign the evaluation

40



sheet. Any deviations from the specifications,Delivery period normal terms and conditions andany special conditions, assistance etc., stipulatedby the firm shall be highlighted. It shall be the

responsibility of the concerned purchase officerto ensure prompt preparation of the pricestatement as well as finalization of the papers.

In case where it is not possible to define theexact specifications of the requirement,negotiations can start from the initial stage itself.Parties shall be requested to quote for the greed

specifications.

On the receipt of the final formal offers theremay be second round of negotiations to arrive atprice agreement. This method is ideal forprocessing development orders wherespecifications price and quantities have to benegotiated before an order be placed with a new

firm.

41



42



CHAPTER - VIII

PURCHASE PROGREESSION

The efficiency of purchasing largely dependson a good and effective purchase progressionsystem. The progression system should ensurethe following in respect of each purchase requestreceived by the purchase department.

1.Enquiry sent in time2.Offers are received in time3.Order is placed in time

4. Goods on order are received as perdelivery schedule and bill/discrepancies

are settled promptly.

For ensuring the above, a progression cell should

be specially organized in the purchase

department to operate directly under the head of the purchase department. Care should be taken

to ensure that the cell deals with real time

information and does not become a postmortem

cell to find faults with the other sub-departments

of purchase. The cell shall provide a positive

43



service by providing timely warning signals

where delays are occurring so that timely

corrective action is initiated by the buyer. The

computer facilities are now available. Thereforein the prime interest of purchase department to

plan timely input of purchase data to the

computer obtaining purchase progression

Computer facilities are now available with the

various divisions of company. It is therefore, in

the prime interest of purchase department to

plan timely input of purchase date to the

computer for obtaining purchase progression

service from the computer center. In the

intervening period, the cell shall monitor the

progression of purchases with the help of:

1)Purchase request / Indent progression

register/Database (Pre contract stage)

2)Purchase order progression register/

Database (post – contract stage)

Purchase request / Indent progression

register/Database:

All indents received shall be entered

in the indent progression register/database. The

register/Database shall have the following columns:

44



a)Serial Number

b)Indent number and date

c) Brief description of the item

d)No. of items on the indent

e)Estimated value

f) Date Indent received

g)Date enquiry issued

h)Due date for receipt of offers

i) Date of tender opening

j) No. of tender received

k)Date comparative statement was prepared

l) Date of putting up proposal for approval

m) Purchase order number and date

45



n)No. of items in the purchase order

o)Name of supplier

p)Value of the purchase orderq)Remarks

46



CHAPTER - IX

VENDOR SOURCE SELECTION

The main objective of purchase department is

timely procurement and supply of material to

the indenting departments. Non-receipt of

materials ahead of time would be a burden on

the cash flow of the company and add to

inventory carrying costs. It is therefore

important that right source is contacted. To

achieve the aim shall carry out intensive

market survey and prepare a register/database

of approved suppliers.

47



VENDOR SOURCE SELECTION:

Potential vendors will be identified from one ormore of the following sources:

1)Design Documents:

Proprietary sources as specified in the

aeronautical products design documents.

2)Published Sources:

A number of sources may be identified from

published sources. The following is arepresentative list:

a)Vendor Directories:

- Compass

- ABC Inventory

- Jane’s Directory

- SBAC

- Gifas

48



- World Aviation Directory

- Internet and on-line

directories like ILS

(Inventory Locator Service)etc.

- Thomas’s Register

- Directory of Indian industries

b)Industry Sources:

- Industry associations

- Trade associations

- Trade Papers, Journals and

Purchase Magazines

- Professional Association

- Industry Buyer’s Guide

-

3)Others:

49



- Indigenization compendiums

prepared by company.

- Compendium registered

firms for Aeronautical storesapproved by DGAQA, DTD

&p(Air), Ministry of Defense,

and firms approved by

DGCA.

50



CHAPTER – X

PURCHASE APPROVAL

A purchase proposal for approval shall becomprehensive and self-contained. A standard

perform, as under, shall be used for putting up

purchase proposals separately for Project Materials,

Non Project Materials and Capital Items. Format

should be put up along with the necessary minimum

enclosure as under are required to be forwarded:

Technical Evaluation statement

Comparative Statement of Prices

Price justification

Agenda/Points for negotiation

51



PNC Recommendation

Draft Purchase order / Agreement whenever

required.

PURCHASE ORDER GENERATION:

On approval of the proposal, one copy of the

proposal with necessary sanction would be returned

to the purchase department for taking further action.

The purchase section, on the basis of approved

purchase proposals, shall release purchase orders.

The following instructions shall be followed, whilepreparing the purchase orders:

a)All purchase orders shall be typed and not

handwritten.

b)Total no. of items must be mentioned in words

to obviate any unauthorized alterations.

c) Alterations, additions or amendments shall be

avoided on purchase orders. Amendments if

any are to be effected only by issuing

purchase order amendments.

52



d)Draft purchase order, being put up for

approval, shall be signed by Head of IMM,

where CFA is Director/ Chairman/ PSC/ Board;

and by an officer as designated by head of IMM in other cases. Draft purchase order shall

be signed in full duly indicating his

designation on two copies of purchase orders,

one of which shall be sent to finance and the

other retained as master office copy in

purchase file. Any additional copy(s) shall be

signed by the concerned officer after approval

of purchase order.

All purchase orders issued will have the following

details:-

Purchase order no. and date

1. Name of the supplier/Vendor

2. Name of the material

3.Quantity

4.Unit Price

5. Value of the purchase order

6. Due date of delivery

7. Payment terms (details)

53



8. Others terms and conditions

9. Shipment Details

10. Signature of the department head &approval authority

Purchase Order Acknowledgement:

One copy of purchase order shall be sent to the

supplier with a request to send back the

acknowledgement as a token of acceptance of the

order. (Proper acknowledgement form is to be

enclosed).

While sending a copy of for acknowledgement by the

supplier, a suitable mention must be made of theperiod within which the vendor has to respond. In

case the acknowledgement is not received within the

stipulated period, the dealing officer should

correspond with the supplier for an appropriate

should correspond with the supplier for an

appropriate response.

Purchase Order Terms and Important Conditions

The terms & conditions in the purchase order,

including payment terms, LD for delayed supplies and

54



bearing the cost of LC confirmation/extension etc,

need to be very clear and may be amplified if

necessary to avoid ambiguity/ miss-interpretation. No

such condition, which has not been agreed andfinalized with vendor, should be incorporated

unilaterally.

Some of the important conditions of purchase orders

are enumerated below:

Standard Terms and Conditions

Suppliers generally quote as per their standard terms

and conditions of sales. These conditions shall

be examined and

effort shall be made to bring round the supplier to

agree to the standard terms and conditions of the

company. For any contract to be legally binding the

acceptance of tender conditions in to is essential. If

the tenderer has quoted his own terms and condition

he should either be persuaded to withdraw his terms

and conditions or the same may be agreed to and

incorporated in the order, depending upon the

situation.

55



Prices

As far as possible, orders shall be on firm prices.

In certain cases, some firms quote and insist on

prices ruling at the time of dispatch and there may be

no other option. In such cases, the firms may be

advised to intimate the ruling price and obtain

concurrence before dispatch.

Payment Terms

Payments on proof of dispatch shall be allowed

only to approved suppliers and firms of repute. Under

all circumstances, satisfactory proof of dispatch shall

be insisted upon. The tender/ request for quotation

should not indicate any advance in payment terms.However in case of a quote received with condition of

advance payment, the leveling of quotes shall be

carried out by appropriately accounting interest on

advance to arrive at L1 quote.

No advance should be agreed, if the same has not

been included in the original offer. If for reasons (to

56



be recorded), the same is agreed later on, the

advance shall be interest bearing at prevalent

scheduled bank leading rates.

Any advance payments to suppliers shall be madeonly after receipt of an unconditional bank guarantee

of equivalent amount from a nationalized bank (in

case of a foreign supplier)

In case an advance has been agreed as part of the

contract, the advance payment may be released in-

stages depending upon the progress of development

work/ supplies.

Risk purchase

Risk purchase is only tenable, if made within six

months of the cancellation of order and for the

material to the same specifications.

Arbitration clauseA standard arbitration clause as recommended by the

Indian council of arbitration under the arbitration act,

1940 shall be incorporated.

Security Deposits and Performance Guarantees

57



Security deposits and performance guarantee, as

decided by the Divisional Management must be

deposited by the firm within specified time.

Following clause shall be incorporated in all enquiries,tenders, purchase orders, contracts/ agreements:

“The seller confirms and declares to the buyer that

the seller is the original manufacturer of the stores

referred to in this contract and has not engaged any

individual or firm, whether Indian or foreign

whatsoever, to intercede, facilitate or in any way to

recommend to HAL or any of its functionaries,

whether officially or unofficially, to the award of the

contract to the seller nor has any amount been paid,

promised or intended to be paid to any such

individual or firm in respect of any such intercession,

facilitation or recommendation.

The seller agrees that if it is established at any timeto the satisfaction of the buyer of the present

declaration is in any way incorrect or if at a later

stage it is discovered by the buyer that the seller has

engaged any such individual/firm, and paid or

intended to pay any amount, gift, award, fees,

commission or consideration to such person, party,

firm or institution, whether before or after the signingof this contract, the seller will be liable to fund that

amount to the buyer.

58



The seller will also be debarred from entering into anysupply contract with HAL for a minimum period of five

years. The buyer will also have a right to consider

cancellation of the contract either wholly or in the

part, without any entitlement or compensation to the

seller who shall in such event be liable to refund all

payments made by the buyer in the terms of the

contract along with interest at the rate of 2% per

annum above LIBOR rate. The buyer will also have

the right to recover any such amount from any

contacts concluded earlier with HAL or Government of

India.”

It should be ensured that the supplier confirms/

responds to this clause before forwarding his offer.

Liquidated Damage Clause

Liquidated damages are remedies available to

compensate for the financial loss suffered as the

result of a proven breach of contract.

A clause for recovery of liquidated damages may be

included. The percentage of the liquidated damages

shall be realistic and have a relationship to apredetermined loss which the company may suffer on

account of delayed supplies.

59



The contract may include an overall maximum

amount or period of time, or both, during which

liquidated damages may be assessed. However, a

careful watch shall be kept on agreed delivery

schedule ant the firm shall be warned by sending

reminders at appropriate time before the expiry of

delivery date. Liquidated damages due as per agreed

amount shall be recovered from the payments due to

the supplier and shall not be postponed till the final

payment becomes due.

When it is determined that a liquidated damages

clause will be included in the contract/ purchaseorder, the applicable clause and appropriate rate(S)

must be contained in the RFQ.

Price Escalation Clause

Escalation clause, where agreed should have a fixed

element and a variable element consisting of Labor

and material. Price escalation clause, if agreed to,

shall be clearly defined as to what extent and on what

basis escalation is admissible. The clause should also

specify cap on escalation.

Immunity to Government of India:

60



Following clause on the subject shall be included in

the terms & conditions of the purchase order/

contract:

“It is understood and agreed that the government of

India is not a party to this agreement and has no

liabilities, obligation or rights hereunder. It is

expressly understood and agreed that

HAL design complex is an independent legal entity

with power and authority to enter into contracts

solely in its own behalf under the applicable Laws of

India and general Principles Contract Law. The vendor

shall agree, acknowledge and understand that HAL is

not an agent, representative or delegate of theGovernment of India. It is further understood and

agreed that the Government of India is not and shall

not be liable for any acts, omissions, commissions,

braches or other wrongs arising out of the contract.

Accordingly, vendor expressly waives releases and

foregoes any and all actions or claims against the

Government of India arising out of this contract, notto sue the Government of India as to any manner,

claim, and cause of action or thing whatsoever arising

out of or under this agreement.”

Offsets:

61



Inclusion of an offset clause amounting to 30 percent

of the contract value, where the indicative cost of the

contract is Rs 300 crores or more shall be considered.

The negotiating committee may consider changes inthe offset amount, as necessary, while making its

recommendation.

SETTLEMENT OF VENDOR BILLS

In order to maintain creditability and project image of

the company it is utmost importance that the bills of

the vendor are paid at a reasonable time. Purchase

Department being the sole contact point it is

necessary that the Purchase Department takes the

responsibility of arranging timely payments by co-coordinating with the inspection, stores, Indenting

Department and Finance Departments for more

movement of the necessary documents for releasing

the payment.

62



63



CHAPTER – XI

ETHICS OF PURCHASING

RELATIONSHIP WITH THE SUPPLIERS: -

In all their dealing and transactions, the personal of

the Purchase department shall conduct themselves in

an exemplary manner in keeping with the best

interest dignity and tradition of the company and

their profession In this connection the “Code of

Conduct and Ethics” adopted by the Indian Institute

of Material Management which is reproduced below

shall serve to guide their actions.

1. To consider first the total interest of one’s

organization in all transaction without impairing

the Dignity and responsibility of one’s office.

64



2. To buy without prejudice seeking to obtain the

maximum ultimate value for each rupee of

expenditure.

3. To subscribe and work for honest and truth inbuying and selling to denounce all forms and

manifestations of commercial bribery and to

eschew anti social practices.

4. To accord a prompt and courteous reception so

far as conditions will permit to all who call upon a

legitimate business mission.

5. To respect one’s obligations and those of one’s

organization consistent with good business

practices.

65



CHAPTER – XII

OBSERVATIONS

1)The systems and procedure are well documented

and exhaustive. The systems are robust and

facilitate for easy processing of the Purchase

proposals. Internal checks & Balances have been

incorporated in the system to ensure compliance.

2)A manufacturing Industry can prepare a Purchase

budget for every year with reference to the

consumption of the previous years.

3)The materials are procured from a limited

number of suppliers. It is due to the reliability of

the supplier with respect to quality. However, but

it should not so happen the supplier is unable to

supply and the work is affected.

66



4)Purchase should plan the requirements in order

to minimize the Purchase when the market price

is high and procure the items in advance when

the price hike is expected in the near future.5)Price and Purchase history of the items for the

previous years is not maintained properly.

67



CHAPTER – XIII

SUGGESTIONS

1. To add some more suppliers in the list to avoid

the problem of replying one supplier. (Putting all

eggs in one basket).

2. Enhance the quality of the work by using skilled

manpower with modern office equipments like

PC, Fax, Internet Connection etc.,

3. Training of the employees to enhance there skill

levels and effective use of the available system.

4. To educate the vendors of the need of quality

and obtaining the quality Certifications like ISO.

5. The systems are mainly manual and paper based

which has to be revised to e-mode and paperless.

Software for e-tendering,

68



6. E-procurement are available which need to be

implemented.

7. The computer systems are more of standalone

nature and inter-department integration is notavailable. Processes such as ERP need to be

implemented in such large organization keeping

track of Data manually are very difficult and

cumbersome.

69



CONCLUSION

The study conducted on purchase procedures andsystems in a Manufacturing industry is deliberate

attempt to show how a purchase Department function

in a large manufacturing

Industry and how the functioning can be improved by

adopting latest techniques available. The coming

Days are of increased competition and technological

advancement. In order to succeed in the competitive

environment one has to be careful and fully aware of

the fast changes taking place in the market.

And more over we have to be well equipped with

modern technological and innovative ideas to take

70



edge over others and improve the business of the

organization.

71



72



73

GM

AGM (IMM)

CM(IMM) CM(PURCHASE) CM(STORES)

PURCHASE DEPARTMENT

BA1 BA2 BA3 BA4 BA5 BA6 BA7

OFFICERS MANAGER MANAGER MANAGER MANAGER MANAGER MANA

CLEARKS CLEARKS CLEARKS CLEARKS CLEARKS CLEARKS CLEA



Purchase department is divided in to SEVEN groups for smooth functioningand easy procurement of materials.

Functions of various groups:

BA1 Procurement of consumables and 100% EOU Raw Materials forall projects

BA2 Procurement of Tools for all projectsBA3 Repair of all bought out materials for all projectsBA4 Procurement of capital equipment and shop floor consumables

and tendering process for all projectsBA5 Handling of 100% E O U Materials (standard parts and bought

out materials)BA6 Procurement of stationery and chemical consumables for all

projectsBA7 Procurement of standard bought out materials for all projects

74



HINDUSTAN AERONAUTICS LIMITED,AIRCRAFT DIVISION,(BANGALORE COMPLEX)

MATERIAL PROCUREMENT REQUEST FORMMPR NO: -LEAD TIME: IMMEDIATE

DATE: -PRODN. YEAR: 2010-11

PROJECT:

SlNo.

Part No.Description

Qty. Instock

Qty.Required

UnitRate

Estimated Value

(Rs.)

PreviousUnit

value

75



Scope of work/ Terms and Conditions:

Remarks:

Sources of supple: 1)

2)

3)

Co-Ordinated by:Approved By

Indenter: CM (Works)/CM (Maint.) DGMGM (SP)

INVITATION TO TENDER

HAL, Aircraft

Division

Bangalore

Request forQuotation

Ref. No.:Date:

76



To:

Kind Attn:

Dear sir/Madam,

Request you to quote your best offer the products mention

below for our consideration

Quotation required on or before…………………….

Part No._______________

Quantity Required:

Time Schedule:

Sample: Pilot Bulk:

Packing Specification (if any)

Delivery Conditions:

Name & Signature of Authorized Person:

Date:

COMPARATIVE PRICE STATEMENT

H.A.L MPRN:

1. No. of Enquiries issued: Enquiry Date:

2. No of Tenders Received: Date of

tender due:

3. Date of opening of Tenders:

Item Part No. Sl. No. Reqd. Qty IN Current Offers

77



No. Description NO’s Vendor

- 1

Vendor

- 2

Vendor

- 3

Rs. Rs. Rs.

1.

VAT

Total

Sales Tax

Excise Duty

Discount

To the offer in conformity with our

VALIDITY FOR ACCEPTANCE

PRICE QUOTED (FIRM/VARIABLE)

PRICE QUOTED EX-WORKS/E.O.R./FAS/C&F

CONDITION OF THE MATERIALS OFFERED

DELIVERY OFFERED WEEKS/DAYS/MONTHSA.R.D

TERMS OF PAYMENT L/C/Docs throughBANK/ADVANCE Etc.

Local candidates if any agent commission -- -- --

CM (PM): Please Offer your comments on technical acceptability of the

quote.

CM (PUR)

VENDORS HISTORY CARDRegn. No. ________ DT of Opening _________ Purchase Gp.

________

Name of the Firm: _____________________

78



Postal Address: ________________________

________________________

________________________

Telephone No. __________________ Fax No.

_____________________

Contact Person Name: ____________________ Designation

______________

Sl

No

Order No

& Date

Descripti

on

No

of item

s

Value Date of

DeliveryDue

Date of

Delivery made

Quality Remarks

79



H.A.L PETTY PURCHASE REQUEST FORP-6

AIRCRAFT

REQUEST FOR PURCHASE OF AN ITEM OF VALUE

NOT EXCEEDING Rs.500 only

Date : _______________

Nomenclature ……………………………………………………………………………………….

Quantity ……………………………………………………………………………………………..

Estimating cost ………………………………………………………………………………………

Nature of request …………………………………………. ……………..Stock / Non-Stock Items

(Strike out which is notapplicable)

For Stock item please mention reason for request…………………………………………………...

………………………………………………………………………………………………………..

The above item has been fixed at the required place

For Non-Stock Item please give reason of not being recommended

as a stock item …………………………………………………………………………………………….

……………………………………………………………………………………………………………..

80



Certified that item being procured is one time requirement and may not be required foranother 2 months

(Sr. C.M.) ( Stores Manager) (Head of

Dept.)

ACTION TAKEN

Note :- 1. * For stock item request is to be routed through Stores Manager.

2. Original copy will be sent to Accounts along with Cash Memo / Bill.

RECEIVING REPORT REGISTER

SL.

No.

RR NO. & DATE RECEIVED

ON

FINALISED

ON

REMARKS

81



HINDUSTAN AERONAUTICS LIMITED

AIRCRAFT DIVISION, (BANGALORE COMPLEX)

PURCHASE ORDER

Vendor’s Name & Address Purchase order No.

Date:

Quotation Ref. No:

Date:

Vendor Code

Please arrange to supply the following materials as per terms and conditions

given below:

Sl.

No.

Description Qty. Unit Price Amount

Payment Terms : Insurance

:

82



Delivery : Excise Duty

:

CST/VAT : CESS/ST

:Discount% : Freight

:

Packing & Forwarding: TIN

No. :

Prepared by:

Authorized by

83



TERMS AND CONDITION

IMPORTANT

1. Un less otherwise agreed to previously, the orders are

subject to approved of sample which must be sent in the first

instance.

2. Indemnify all packages with Hindustan Aeronautics Ltd..,

Aerospace Division, and order reference number.

3. Order number, description, quality, Weight and mode of

transport of the goods should be furnished in the invoice and

dispatch advice notice.

4. Delivery is the essence of the contract and should be made

within the specified periods specified.

5. Unless otherwise specified, the quantities in order may besubject to variation of 10 percent more or less of the ordered

quantities.

6. For sale Tax Check post/Octori purposes please note to

hand over to the carries at the time of dispatch relevant

copies of your invoice and delivery challan duly mentioning

CST/Regn. Number.

7. Advance copies of dispatch document should be sent to us.

8. Delivery challan in duplicate indicating purchase order

number must be sent to our office along with the goods in the

case of local deliveries.

84



9. If the goods covered by the order are not supplied within

the stipulated delivery period, we reserve the right to treat

this order as cancelled either in full or in part as the case

may be without resource and without further reference to the

suppliers. Also in the event of any default by the supplier, wereserve the right to procure from any similar goods or

substitutes at the risk and the cost of suppliers.

10. All suppliers are subject to inspection by our

engineers/user department and the supplier if any should

clear rejection within three days from the date of receipt of

information of such rejections. In case of suppliers from muffs

the rejected material will be packed and dispatched at

supplier’s cost.

11. Incase excise duty is charged gate pass must accompany

the documents.

12. Please post us the order acknowledgement immediately

after receipt of the order.

13. This order is governed by HAL Terms and Conditions of

contract.

85



BIBILOGRAPHY

TITLE AUTHOR

Purchase Manual (Internal Use) M/s. HAL

Integrated Materials Anil K Datta

Purchase procedures www.google.com