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Major project report on
Re-engineering the Purchase Process of Indian Railways
National Academy of Indian Railways
Submitted to
Professor Inventory Management, NAIR
Submitted by Group V, IRSS(P)-2013
Biswajit Sahu
Prafulla Pokhara
Ravindra Kr. Verma
Rituraj Bhati
S. Tejdeep
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TABLE OF CONTENTSTABLE OF CONTENTS...................................................................................................................................1
TABLE OF FIGURES.......................................................................................................................................2
ACKNOWLEDGEMENT.................................................................................................................................3
ABSTRACT.......................................................................................................................................................4
Chapter 1............................................................................................................................................................5
INRODUCTION................................................................................................................................................5
1.1 Re-engineering.........................................................................................................................................5
1.2 Methodology.............................................................................................................................................6
Chapter 2............................................................................................................................................................8
PRESENT SYSTEM OF PURCHASE MODEL OF INDIAN RAILWAYS...................................................8
2.1 Flow chart.................................................................................................................................................8
2.2 Problems with the present purchase system:............................................................................................9
Chapter 3..........................................................................................................................................................10
ANALYSIS AND MODIFICATION IN THE EXISTING PROCESS..........................................................10
3.1 Data from various zones.........................................................................................................................11
3.1.1 Data from SCR.................................................................................................................................11
3.1.2 Data from ER...................................................................................................................................12
3.1.3 Data from NWR...............................................................................................................................13
3.1.4 Data from NR...................................................................................................................................14
3.1.5 Data comparison of four Zones.......................................................................................................15
3.2.1 Data Analysis...................................................................................................................................15
3.2.2 Stepwise analysis.............................................................................................................................15
Chapter 4..........................................................................................................................................................17
RE-DESIGN OF PURCHASE PROCESS......................................................................................................17
4.1 Elimination of redundant and unnecessary steps....................................................................................17
4.2 Suggestions:............................................................................................................................................18
Chapter 5..........................................................................................................................................................19
CONCLUSION................................................................................................................................................19
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TABLE OF FIGURES
Figure 1: flowchart showing present purchase process......................................................................................8
Figure 2 : bar chart showing number of days required for steps A to F in the purchase process....................11
Figure 3: bar chart showing number of days required for steps G to M..........................................................11
Figure 4: bar chart showing number of days required for steps A to F...........................................................12
Figure 5: flowchart showing number of days required for steps G to M.........................................................12
Figure 6: bar chart showing number of days required for steps A to F...........................................................13
Figure 7: bar chart showing number of days required for steps G to M..........................................................13
Figure 8: bar chart showing number of days required for steps A to F...........................................................14
Figure 9: flowchart showing number of days required for steps G to M.........................................................14
Figure 10: flowchart comparing the complete process time for four zones.....................................................15
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ACKNOWLEDGEMENT
We take this opportunity to express our heartfelt gratitude towards all the people without whose active cooperation this project would not have seen the light of the day. We sincerely thank our Course Director Shri Rakesh Rajpurohit, (PIM/RSC) for his continuous guidance, constructive suggestions andinspiration.
Shri Rakesh Khare (Dy.CMM, ER), Shri T.A Khan (Dy.CMM/ER), Shri PVV Satya Narayana (CMM/SCR), Shri A.Pradeep (Dy.CMM/SCR), Shri. Sanjeev verma (Dy.CMM/NWR), Shri Raj kumar (SMM/NWR) deserve special thanks for their detailed discussions, constructive suggestions and sharing of their experiences and data of their respective railways.
We are also grateful to Shri. Anand (CA to PIM) and all the other staff of the stores department at HQ of NR, SCR, NWR, ER and ECoR for their assistance and useful comments.
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ABSTRACT
Purchase activities all over the Indian railway are dealt with by Stores Department having followed certain procedure on the basis of stores code and instructions issued by the Railway board from time to time. Although these instructions have stood the test of time, the last decade has seen spurts in information technology all over the world. Railway is facing mounting competition from other sector of transport industries and on the other hand expectation of the customers is rising high. The need of the hour is to keep pace with the time and lower the production cost and increases the productivity to make entire business cost effective. This necessitates study in depth to identify the redundancy in the present system and reengineering the same.
This project analyses and reengineers the purchase process of Indian Railways by examining the existing purchase process of Indian Railways and collecting data from different zones. All purchase steps were studied with their respective time duration. Then processes were plotted with respect to time duration for different PL groups.
The study reveals the inordinate delays & unnecessary approvals in the purchase process. These steps cause time and cost inefficiencies during the purchase process. The team applied Business Process Reengineering (BPR) principles to reengineer the existing purchase process of Indian Railways.
The proposed reengineered model attempts to reduce time cost and hence money cost, and human resource involved. The net effect endeavours to improve efficiency and effectiveness, and enabling the organization to earn itself the envious status of a vibrant, dynamic and progressive concern.
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Chapter 1
INRODUCTION
On IR 3Lakh items are stocked for various activities in the Railway system, procurement of which incurs 30% of the total working expenses. Like any other industry or commercial organization IR needs material of Right quality, Right quantity at Right place and Right Time. Materials if not available in time affect the function of user department directly or indirectly leading to dissatisfaction at the customers end. The existing system of procurement of stores requires intervention of IT expertise to curtail the high lead time and placement of Orders should be made ensuring compliance.
In the existing system file moves from desk to desk like a chain. The strength of the chain is the strength of its weakest link. With the same analogy if one activity is delayed it invariably delays the whole process. Thepurpose of the study is to identify such delays or redundancy in the system, analyze the same and suggest ways to remove them.
1.1 Re-engineeringReengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed. The concept advocates that organisations go back to the basics and re-examine their very roots. It doesn’t believe in small improvements. Rather it aims at total reinvention.
In today’s ever-changing world, the only thing that doesn’t change is ‘change ‘itself. In a world increasingly driven by the three Cs: Customer, Competition and Change, organisations are on the lookout for new solutions for their organisational problems. Recently, some of the more successful organizations in the world seem to have hit upon an incredible solution: Process Reengineering
Process Reengineering
Process Reengineering is the analysis and design of workflows and processes within an organization. A business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering is the basis for many recent developments in management. It began as a private sector technique to help organizations fundamentally rethink how they do their working order to dramatically improve customer service, cut operational costs, and become world-class competitors. A key stimulus for reengineering has been the continuing development and deployment of sophisticated information systems and networks. Leading organizations are becoming bolder in using this technology to support innovative organisational processes, rather than refining current ways of doing work.
Process Reengineering is basically the fundamental rethinking and radical redesign, made to an organization’s existing resources. It is an approach for redesigning the way work is done to better support the organization's mission and reduce costs. Reengineering starts with a high-level assessment of the organization's mission, strategic goals, and customer needs. Basic questions are asked, such as "Does our mission need to be redefined? Are our strategic goals aligned with our mission? Who are our customers?" An organization may find that it is operating on questionable assumptions, particularly in terms of the wants
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and needs of its customers. Only after the organization rethinks what it should be doing, does it go on to decide how best to do it. Within the framework of this basic assessment of mission and goals, reengineering focuses on the organization's business processes—the steps and procedures that govern how resources are used to create products and services that meet the needs of particular customers. As a structured ordering of work steps across time and place, a process can be decomposed into specific activities, measured, modelled, and improved. It can also be completely redesigned or eliminated altogether. Reengineering identifies, analyzes, and redesigns an organization's core processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed. Reengineering recognizes that an organization's business processes are usually fragmented into sub-processes and tasks that are carried out by several specialized functional areas within the organization. Often, no one is responsible for the overall performance of the entire process. Reengineering maintains that optimizing the performance of sub-processes can result in some benefits, but cannot yield dramatic improvements if the process itself isfundamentally inefficient and outmoded. For that reason, reengineering focuses on redesigning the process as a whole in order to achieve the greatest possible benefits to the organization and their customers. This drive for realizing dramatic improvements by fundamentally rethinking how the organization's work should be done distinguishes reengineering from process improvement efforts that focus on functional or incremental improvement.
1.2 MethodologyThe following modus-operandi was pursued for the purchase process re-engineering
1. Determine Customer Requirements & Goals for the Process2. Map and Measure the Existing Process.3. Analyze and Modify Existing Process4. Design a Re-engineered process5. Implement the Re-engineered process.
MISSION
The project team learned that to address customer concerns, the purchase process of Store Department should be directed towards the vision to "SERVE" the customer by delivering:
SPEED via a streamlined process with fewer steps, fewer approvals, and a dramatic reduction in the time to place orders and receive goods.
EASE via a system that is transparent, flexible, scalable and simple to use
REFOCUSED by creating a purchasing organization that plays a strategic
ROLES role in the management of the entire process
VALUE by consolidating the purchasing power to ensure good service, guarantee full value for every Rupee spent, and reduce the cost of some goods
EFFICIENCY by implementing a system that tracks all purchasetransactions, applies purchases to the right project, eliminatesthe need for shadow systems, and provides the tools for unitsto financially manage their purchasing
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The mission is to purchase the goods
1. Of Right Quality,2. In Right Quantity,3. Of Right Reliability4. At the Right Time (i.e., delivered when and where needed)5. For the Right Price (i.e., full value for each rupee spent)6. From the Right Source
Goals of the redesign effort include:
greatly improved customer satisfaction and substantially lower transaction costs, simultaneously abiding by the Guiding Principles of Public Procurement which are as follows:
1. Fairness,
2. Competition
3. Transparency
4. Maximizing Economy, Efficiency and Effectiveness
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Chapter 2
PRESENT SYSTEM OF PURCHASE MODEL OF INDIAN RAILWAYS
In the present system, for most of the items related to maintenance & repair of rolling stock, the demand is fairly constant and proportionate to the outturn, which is known well in advance from fixed production targets. For these items every Railways procure their requirement separately on yearly basis except for some of the items like brake blocks which is procured through Railways Board. However, most of the high value/high volume (i.e. “A” category items) are purchased separately by Zonal Railways with supplies to respective Depots in multiple lots for further distribution to attached Workshops/Sheds. Most of these “A” category items are procured from approved sources which are limited in number with Multiple sourcing being done while entering into contract to ensure assured supplies for improving the availability.
2.1 Flow chart
Figure 1: flowchart showing present purchase process
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Generation of ES at EDP centre
Correction of AAC at depot and Accounts vetting
Consolidation of demand at HQ
Qty approval and purchase proposal
Preparation of tender schedule Floating of tenderTender OpeningTechnical
suitability
TC proceedings and T.C. signature
Acceptance by Competent Authority
Draft PO preparation
PO vetting by accounts
Release of PODelivery of material
Acceptance and R-note preparationIssue of R.O
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2.2 Problems with the present purchase system:
1. Unnecessary file movements
2. Sub-optimal utilization of IT: Collection of EMD, Tender fee should be routed through e-transaction like NEFT, RTGS and not through Demand Draft. So that, vendors can’t be escaped from paying the required fee.
3. Lack of punitive action, accountability in purchase process: It is observed that certain steps in the purchase process take more time than required. To curb these delaying tendencies, a standard time-chart like citizen charter should be prepared and non-adherence must be dealt with imposition of penalty.
4. Poor vendor base: Presently, vendor development is being done by RDSO whereas procurements are done by stores department. In some cases, certain items can be purchased timely and cheaply from local vendors but due to Railway Board’s guidelines for safety items, procurement must be done only from RDSO approved sources. Thus, it is suggested that vendor development should also be handled by stores department of each zone. Besides that, a comprehensive vendor rating system should also be developed, based on vendor’s past performance. It will solve the problem of awarding contract to less reliable vendor.
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Chapter 3
ANALYSIS AND MODIFICATION IN THE EXISTING PROCESS
In order to understand the existing process of purchase, data has been collected from four different zones i.e. SCR, ER, NWR, NR. The data has been presented as per the PL groups. While collecting data, the various steps involved in the purchase process were identified and the respective time taken for each step has been noted. The following are the identified steps:-
A: Generation of ES in EDP centre / advance intimation to depot - Correction of AAC at depot. / AES generation at Depot
B : Correction of AAC at depot. / AES generation at Depot - Account vetting at Depot
C:Account vetting at Depot - Submission of demand in HQ and Consolidation,
D: Submission of demand in HQ and Consolidation - EAC approval
E: EAC approval - Purchase proposal/Description vetting,
F: Purchase proposal/Description vetting - Preparation of tender schedule and floating of tender
G: Preparation of tender schedule and floating of tender - Tender Opening,
H: Tender Opening - Technical Suitability,
I: Technical Suitability - TC proceedings / T.C. signature,
J: TC proceedings / T.C. signature - Acceptance by competent authority
K: Acceptance by competent authority - Draft PO preparation,
L: Draft PO preparation - PO vetting by accounts,
M: PO vetting by accounts - Release of PO
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3.1 Data from various zones
3.1.1 Data from SCR
10 to 19 20 to 29 30 to 39 50 to 590
20
40
60
80
100
120
140
58
3452
39
2
1
5
3
6
2
6
3
4
2
6
6
21
5
12
6
40
65
30
27 FEDCBA
PL group
No.
of d
ays
Figure 2 : bar chart showing number of days required for steps A to F in the purchase process
10 to 19 20 to 29 30 to 39 50 to 590
20
40
60
80
100
120
140
160
180
36 31 38 32
4 1013
19
25 9
1
22
60
23 673
4
4
2
12
25
45 5
3
5 38
21
MLKJIHG
PL group
No.
of d
ays
Figure 3: bar chart showing number of days required for steps G to M
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3.1.2 Data from ER
10 to 19 20 to 29 30 to 39 50 to 59 80 to 890
50
100
150
200
250
45 34 28 41 25
2019 16
1614
33 5231
4661
18 7
14
15 2111 8
8
18 26
6850
29
25 18FEDCBA
PL group
No.
of d
ays
Figure 4: bar chart showing number of days required for steps A to F
10 to 19 20 to 29 30 to 39 50 to 59 80 to 890
50
100
150
200
250
38 42 35 45 34
25 12 17 13 30
126
94 108 104 90
3
45 3 6
17
1312 5 20
18
1913 22
20
MLKJIHG
PL group
No.
of d
ays
Figure 5: flowchart showing number of days required for steps G to M
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3.1.3 Data from NWR
10 to 19 30 to 39 40 to 49 80 to 89 M & P0
50
100
150
200
250
300
350
7645 24 37
126
32120 74 153
6
9
28
29
8
5
313
136
FEDA+B+C
PL group
No.
of d
ays
Figure 6: bar chart showing number of days required for steps A to F
10 to 19 30 to 39 40 to 49 80 to 89 M & P0
50
100
150
200
250
300
28 43 3154 35
1221
1813 4146
6046
133
3943
30
0
35
621
10
9
4
2515
17
12
8
41 MLJ + KIHG
PL group
No.
of d
ays
Figure 7: bar chart showing number of days required for steps G to M
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3.1.4 Data from NR
10 to 19 30 to 39 40 to 49 80 to 890
50
100
150
200
250
300
54 4018 28
48
710
78
15
13
190
125
14 121
2021
15
9
27 12
FD+ECBA
PL group
No.
of d
ays
Figure 8: bar chart showing number of days required for steps A to F
10 to 19 30 to 39 40 to 49 80 to 890
50
100
150
200
250
39 35 35 35
10 11 11 10
124
52 41 32
5
15 11
3
3010 15
12
30
10 13
8
7
8 12
MLKJIHG
PL group
No.
of d
ays
Figure 9: flowchart showing number of days required for steps G to M
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3.1.5 Data comparison of four Zones
10 to 19 20 to 29 30 to 39 40 to 49 50 to 59 80 to 890
50
100
150
200
250
300
350
400
450
500
220
269 281
213
432
367
324 36
5 380
282
271 29
3
401
347
356 38
5
361
SCRERNWRNR
PL group
No.
of d
ays
Figure 10: flowchart comparing the complete process time for four zones
3.2.1 Data Analysis
In the data shown in section 3.1 various processes involved in the purchase process and the respective time taken by them to be completed is studied and presented. Data shows that approximately 40% time is taken till the preparation of purchase proposal that is the quantity needs to be purchased. This section deals with the analysis of the data shown in the previous section and identifies the delays. The reasons behind the delays are examined. Suggestions and recommendations have also been mentioned related to the findings from the data.
3.2.2 Stepwise analysis
Generation of estimate sheet to demand submission in Head quarter
From the data collected, it is analyzed that the average time taken from Generation of Estimation sheet to demand submission in HQ is approximately 80 to 90 days. This process takes a lot of time and can be reduced.
The present process varies from zone to zone, for example, in some zonal railways the Estimation sheet (ES) is prepared in the EDP centre and it is sent to the depot for correction The depot then sends the corrected sheet back to the headquarter but in some railway it is generated in EDP centre and then it is directly sent to the head quarter.
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It should be understood that the MMIS software presently available in all depots along with the fact that depots have better connection with the user departments gives the depots an upper hand in having knowledge of the demands. Therefore, the demand should be generated in the depot itself and sent to the headquarter. This would not only save time but also stop unnecessary movement of the file and hence lower the cost of ordering. And routing through EDP centre is also redundant.
Similarly in some zones quantity vetting is done at depot level and in some Zones it is done at headquarter level, and also for some zones it is done at both the levels and the average time taken for vetting is approximately 10 days. This vetting can be done only at Depot level and it can be done in 3-5 days.
The vetted demand is sent to HQ manually. If it can be accessed electronically considerable amount of time can be saved. An online platform for sending demands can be effortlessly created which would drastically reduce this lead time.
The re-designed process can take only 20 days from a Maximum of 80 days.
Consolidation of demands to floating of tender
The data shows that the time required from consolidation of demands at HQ to floating of tender is around 55 to 65 days.
By increasing human efforts and using accountability measures the entire process can be reduced.
Tender floating to PO release
As seen from the data, the steps from tender floating to PO release takes around 190 days.
According to GFR the time for tender floating to tender opening should be 21 days. It can be seen from the data that this process approximately takes 37 days however it can be reduced to 10 days.
It has been observed that during the TC proceedings there is unnecessary file movement which consumes approximately 65 to 80 days. This can be effectively reduced by using the IREPS to within 20 days.
As vetting has already been done during the initial stages, there is no need of PO vetting and hence draft PO step is also redundant. However PO vetting can be included only when TC recommendations are modified by CA. Due to this the number of days can be effectively reduced from 40 days to 10 days.
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Chapter 4
RE-DESIGN OF PURCHASE PROCESS
4.1 Elimination of redundant and unnecessary steps
49 D 37 D
10 D 30 D
2 D
15 D 3 D
25 D 32 D
10 D 37 D
15 D 15 D
10 D 20 D
14 D 18 D 14 D 10 D 80 D
10 D
Existing process (TOTAL NO OF DAYS – 336 D)
Re engineered process (TOTAL NO OF DAYS – 120 D)
Figure 11: flowchart comparing older process and the newly re-engineered process
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Advance intimation
E/S Generation
in EDP centre
Correction of AAC and
Quantity vetting in
depot
Consolidation of demand in
HQ
Preparation of tender schedule and floating of tender
Tender opening
Technical suitability
TC study and TC
sign
P.O issued
P.O Vetting by Account
Draft P.O
Acceptance by CA
E/S Generation in depot EAC approval/ Purchase proposal
Quantity vetting in depot
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4.2 Suggestions:
Homogenous items from same vendor can be clubbed. Decentralization of Purchase Powers at functional levels. Digitized drawings should be made available to stores department along with purchase restrictions,
so that need to send the file to user department can be reduced. Presently quantity approval & mode of tendering approval are done separately, these can be clubbed.
Approval by competent authority should be in one go and not piece-meal. Streamlining of panels or periodic review should be practiced. This will solve problem of:
a. non-competitive rates,b. Improper responsec. Insufficient Offersd. Single Offer
Strong Punitive Action: Railways often fail to take strong punitive action. It should be taken to send a strong message for serious business.
Many times PO is not placed as per firms offer; this leads to-Return of PO by firm & unnecessary communication regarding clarification for DP/Inspection/Payment terms etc.Solution: a. We should send counter offer as per our requirement, if firm doesn’t agree then bypass L1 and go
to L2.b. Firms should offer PO on a standard format as per their T& Cs in conformance with IRs
requirements. There are many office orders, Railway Board orders/guidelines that were issued to a particular case.
How to link them while taking decision is a big issue. All these orders and guidelines should be compiled for quick disposal of cases,
Post Contract: Standard online formats should be made available for Purchase Order (PO) modification, Extension of Delivery Period (DP) etc. So that, pending request can be known immediately.
Finance member of tender committee should ensure that there would be no alteration in quantity after tender committee approval.
Like works tenders, exemption of tender fee for NSIC (National Small Industries Corporation) firms, should be removed. Since, in present system, there is no database for NSIC and it is impossible to check proper authenticity of NSIC firms at the time of tender fee collection.
In case of purchase of such items where source approval by RDSO is must, security deposit should be exempted up to 50 lacs INR tender value.
Limited tender upper ceiling limit should be enhanced from 15 lacs to 50 lacs INR. M & P cases takes lot of time in deciding technical features. So, user department should be interacted
through firms by various processes like pre bidding query etc. This would result in avoidance of multiple times invitation of tenders.
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Chapter 5
CONCLUSION
The discussion and the improvement suggested through the re-engineering of the present procurement cycle can increase the efficiency and effectiveness of Materials Management Department on Indian Railways in meeting the service levels desired by consuming departments as well as integrating the suppliers into the overall supply chain.
Project has identified the delay in various steps and suggested various measures to reduce it by eliminating some steps and by use of IT application. It also requires personal efforts and accountability measures to increase the efficiency of the process.
Presently few steps are automated but a complete system transformation is required to achieve an efficient and fast purchase process.
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