PROJECT ON

PURCHASE PROCEDURE AND SYSTEMS

CARRIED 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

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

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 : (Purchase) Address Aeronautics Ltd.,

Sri. Manjunath setty T Senior Manager : M/s. Hindustan Bangalore Complex Aircraft Division Post Bag No: 1788 Bangalore: 560 017

Date: Place: Bangalore

ACKNOWLEDGEMENT
My 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 for preparing 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

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CONTENTS
Sl No
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Chapter No
I II III IV V VI VII VIII IX X XI XII XIII XIV INTRODUCTION OBJECTIVES

Description

Pg No
7 - 15 17-18 20-23 25 27-29 31-35 37-40 42-44 46-48 50-60 62 64 66 68

PURCHASE FUNCTIONS PRODUCT PORT FOLIO CLASSIFICATION OF MATERIALS MODES OF TENDERING PURCHASE ENQUIRY PURCHASE PROGRESSION VENDOR SOURCE SELECTION PURCHASE ORDER GENERATION ETHICS OF PURCHASING OBSERVATIONS SUGGETIONS CONCLUSION

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XV XVI

FLOW CHART ANNEXURES

70-71 73-82

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 selfreliance 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
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 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,NADCAP Certification

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
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 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

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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 Asias premier aerospace company, today HAL, Continues to scale greater heights while pioneering 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, having demonstrated its quality and price competitiveness. HAL has spread it wings to cover various activities in the areas of Design, Development, manufacture, and
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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.
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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

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Indian Navy Indian Coast Guard DRDO ISRO BEL NAL

MAJOR CUSTOMERS OF THE COMPANY

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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
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 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

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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.

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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 production pans 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 materials knowledge, 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
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introducing appropriate reporting systems with a view to seek managements invention in time.
i.

To adhere to commercial procedures and maintain cannons of financial propriety to safeguard economic, legal and other interests of company Maintain and improve the quality of materials procured. Lay emphasis on quality management

j.

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CHAPTER III
PURCHASE FUNCTIONS Duties & Responsibilities of Materials Management

Material Planning & control:

a.

Timely provisioning of materials and raise demands in appropriate Performa (MPR/RRS) 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 factors like 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

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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 the selected 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

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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 distributors 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.

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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 brought to 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.

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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

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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 annual Capital 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.
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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 the manufacture/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 inspection authority. 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/planning department.

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 overhead materials / commercial materials.

D.MISCEANEOUS:In respect of items which are not covered above materials purchase requests shall be raised by the head of the user department as per fixed delegation or authority by the head of the division.

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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 language newspapers of all India circulation and where time permits, also in the Indian trade journal / Indian Export, Service Bulletin (IESB). Simultaneously copies of

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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 some other 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 be approved by general Manager. e) A mention of such documents must be on the web site notice and intending bidders be asked to obtain
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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, till last 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

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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 tender documents 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
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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 preferable to 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 Tender Purchase. 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 manufacturers 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

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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 resorted only for emergent requirements. All the readily approachable and well-known vendors are requested to assemble and their offers are obtained after their requirement is explained/shown to them on spot. In case this is not possible to arrange for the suppliers to assemble at one place, then a team of officers comprising of representatives from the Purchase, Finance and the User department accompanied by an Inspection Officer, where necessary, shall proceed to market and obtain spot offers from vendors after physically verifying and inspecting the goods and obtaining the assurance that items are offered exstock.

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CHAPTER-VII
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PURCHASE ENQUIRY A letter/ Telephonic/ Fax offers received in the time may be considered. Such letters or quotations are complete in all respects with regards to price specifications delivery and other particulars essential for taking purchase Decision. A)The enquiry/tender shall indicate full description and 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 standard specifications as far as possible. Under no circumstance, terminology such as best quality, commercial quantity or as per previous supply etc. Shall be used. D)In case where no drawing is available and which cannot be correctly described, a sample is to be shown t the vendors or they may se requested to submit their own samples. E) In cases where HAL reserves the option to supply material, the firms may be asked to give alternative offers with their own supply of materials and with HAL supplied material. F) Delivery expected shall be realistic and specifically indicated. (Words like Urgent/Immediate are to be avoided). In order to meet the project requirement, it would be prudent to incorporate an acceptable range of
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delivery period with the stipulation that no credit will be given for earlier deliveries and offers with delivery beyond the acceptable. Range will be treated as unresponsive. G)In case quantity required is not readily marketed, Minimum Order Quantity stipulation shall be requested in tender enquiry.
H)

Clauses relating to Earnest money, if called for, Delivery Schedule, Payment terms, Performance/Warranty Bank Guarantee, Predispatch inspection, Arbitration, Liquidated Damages/Penalty for the delayed supplies and Risk-purchase etc. must be incorporated in the bid/enquiry documents.

I) It should be made clear in bid documents that conditional discounts shall not be considered in evaluation of tenders.
J)

All requests for quotations/tender enquiry must specify: Last date for submission of Quotes. The tender must also state Tenders received after due date and time shall not be opened and shall not be considered. This should be prominently mentioned in the tender enquiry. In cases where Bidders representative are required to be offered to witness tender opening date and time of opening the tender shall be mentioned in the tender/enquiry

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k) A clause in the tender/enquiry shall be included stating that HAL will not be responsible for the loss or delay in receipt of tender documents/ tender in transit. HAL reserves the right to reject late/incomplete tenders. l) The exemptions/relaxations applicable to SSIs ancillary units, PSUs should be specified in the tender notice (in line with prevailing Govt. Directives) m) In order to ensure that enquiries are sent to the right source, the purchase groups shall use the approved Supplier List both for imported and indigenous purchases. It shall be the responsibility of the Head IMM department to ensure periodical updating of this list. Basic Price and the quantities for which it is valid. Also whether the price is firm and or any escalation formula is offered. 1. Sales Tax, Excise Duty and other terms and conditions. 2. Terms of delivery: Ex-Works/Factory and other terms and conditions. 3. Packing and forwarding charges. 4. The terms of payment 5. Assurance to replace defective supplies. 6. Validity Period is adequate. Utmost care shall be exercised while preparing the comparative price statement. The purchase Assistant who has prepared the statement shall be vetted and counter signed by an officer of the purchase department shall sign the evaluation
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sheet. Any deviations from the specifications, Delivery period normal terms and conditions and any special conditions, assistance etc., stipulated by the firm shall be highlighted. It shall be the responsibility of the concerned purchase officer to ensure prompt preparation of the price statement as well as finalization of the papers. In case where it is not possible to define the exact 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 there may be second round of negotiations to arrive at price agreement. This method is ideal for processing development orders where specifications price and quantities have to be negotiated before an order be placed with a new firm.

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CHAPTER - VIII PURCHASE PROGREESSION The efficiency of purchasing largely depends on a good and effective purchase progression system. The progression system should ensure the following in respect of each purchase request received by the purchase department. 1. Enquiry sent in time 2. Offers are received in time 3. Order is placed in time 4. Goods on order are received as per delivery 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
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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. Therefore in 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:
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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
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n) No. of items in the purchase order o) Name of supplier p)Value of the purchase order q)Remarks

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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.

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VENDOR SOURCE SELECTION:

Potential vendors will be identified from one or more 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 a representative list: a) Vendor Directories:

- Compass - ABC Inventory - Janes Directory - SBAC - Gifas

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- World Aviation Directory - Internet and on-line directories like ILS (Inventory Locator Service) etc. - Thomass Register - Directory of Indian industries

b)Industry Sources: - Industry associations - Trade associations

-

Trade Papers, Journals and Purchase Magazines

- Professional Association - Industry Buyers Guide 3)Others:

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- Indigenization compendiums prepared by company. - Compendium registered firms for Aeronautical stores approved by DGAQA, DTD &p(Air), Ministry of Defense, and firms approved by DGCA.

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CHAPTER X PURCHASE APPROVAL A purchase proposal for approval shall be comprehensive 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
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 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, while preparing 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.
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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)
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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 supplier with a request to send back acknowledgement as a token of acceptance of order. (Proper acknowledgement form is to enclosed).

the the the be

While sending a copy of for acknowledgement by the supplier, a suitable mention must be made of the period 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
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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 and finalized 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.
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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
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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 made only 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 instages 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 clause A standard arbitration clause as recommended by the Indian council of arbitration under the arbitration act, 1940 shall be incorporated.

Security Deposits and Performance Guarantees

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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 time to 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 signing of this contract, the seller will be liable to fund that amount to the buyer.

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The seller will also be debarred from entering into any supply 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 a predetermined loss which the company may suffer on account of delayed supplies.

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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/ purchase order, 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:
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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 the Government 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, not to 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:
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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 in the 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 cocoordinating with the inspection, stores, Indenting Department and Finance Departments for more movement of the necessary documents for releasing the payment.

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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 ones organization in all transaction without impairing the Dignity and responsibility of ones office.
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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 in buying 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 ones obligations and those of ones organization consistent with good business practices.

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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.
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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.

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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,
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6. E-procurement are available which need to be implemented.

7.

The computer systems are more of standalone nature and inter-department integration is not available. Processes such as ERP need to be implemented in such large organization keeping track of Data manually are very difficult and cumbersome.

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CONCLUSION The study conducted on purchase procedures and systems 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
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edge over others and improve the business of the organization.

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GM AGM (IMM) CM(IMM) CM(PURCHASE) CM(STORES)

PURCHASE DEPARTMENT

BA1

BA2

BA3

BA4

BA5

BA6

BA7

OFFICERS

MANAGER

MANAGER

MANAGER

MANAGER

MANAGER

MANAGE R CLEARK S

CLEARKS

CLEARKS

CLEARKS

CLEARKS

CLEARKS

CLEARKS

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

Functions of various groups:

BA1 BA2 BA3 BA4 BA5 BA6 BA7 Procurement of consumables and 100% EOU Raw Materials for all projects Procurement of Tools for all projects Repair of all bought out materials for all projects Procurement of capital equipment and shop floor consumables and tendering process for all projects Handling of 100% E O U Materials (standard parts and bought out materials) Procurement of stationery and chemical consumables for all projects Procurement of standard bought out materials for all projects

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HINDUSTAN AERONAUTICS LIMITED,AIRCRAFT DIVISION, (BANGALORE COMPLEX) MATERIAL PROCUREMENT REQUEST FORM
MPR NO: LEAD TIME: IMMEDIATE DATE: PRODN. YEAR: 2010-11 PROJECT: Sl No. Part No. Description Qty. In stock Qty. Required Unit Rate Estimate d Value (Rs.) Previous Unit value

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Scope of work/ Terms and Conditions: Remarks: Sources of supple: 1) 2) 3) Co-Ordinated by: Approved By

Indenter: GM (SP)

CM (Works)/CM (Maint.)

DGM

INVITATION TO TENDER

HAL, Division Bangalore

Aircraft

Request for Quotation

Ref. No.: Date:

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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: Packing Specification (if any) Pilot Bulk:

Delivery Conditions: Name & Signature of Authorized Person: Date:

COMPARATIVE PRICE STATEMENT H.A.L 1. No. of Enquiries issued: 2. No of Tenders Received: tender due: 3. Date of opening of Tenders: Item Part No. Sl. No. Reqd. Qty IN Current Offers MPRN: Enquiry Date: Date of

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No.

Description

NOs

Vendor -1 Rs.

Vendor -2 Rs.

Vendor -3 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/MONTHS A.R.D TERMS OF PAYMENT L/C/Docs through BANK/ADVANCE Etc. Local candidates if any agent commission ---

--

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

VENDORS HISTORY CARD

Regn. No. ________ DT of Opening _________ Purchase Gp. ________

Name of the Firm: _____________________

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Postal Address: ________________________ ________________________ ________________________ Telephone No. __________________ _____________________ Fax No.

Contact Person Name: ____________________ Designation ______________

Sl N o

Order No & Date

Descripti on

No of item s

Value

Date of Delivery Due

Date of Deliver y made

Quality

Remarks

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H.A.L P-6

PETTY PURCHASE REQUEST AIRCRAFT REQUEST FOR PURCHASE OF AN ITEM OF VALUE NOT EXCEEDING Rs.500 only Date :

FORM

_______________ Nomenclature . Quantity .. Estimating cost Nature of request . ..Stock / Non-Stock Items (Strike out which is not applicable) 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 . ..

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Certified that item being procured is one time requirement and may not be required for another 2 months (Sr. Dept.) C.M.) ( Stores Manager) (Head of

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

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HINDUSTAN AERONAUTICS LIMITED AIRCRAFT DIVISION, (BANGALORE COMPLEX) PURCHASE ORDER

Vendors 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

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Delivery : CST/VAT : Discount% : Packing & Forwarding: No. :

: : :

Excise Duty CESS/ST Freight TIN

Prepared by: Authorized by

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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 be subject 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.

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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, we reserve 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 suppliers 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.

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BIBILOGRAPHY

TITLE Purchase Manual (Internal Use) Integrated Materials Purchase procedures

AUTHOR M/s. HAL Anil K Datta www.google.com

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