Cut costs using Modern Supply Chain Management practices !

Goals of a commercial enterprise Increase income or sales of a company by 20-30%

per annum. Cut-costs by all employees / departments by 10%

per annum. Improve quality of goods and services produced. Improve productivity, efficiency of people,

processes and equipment Benchmark with the best competitors Observe all rules listed on the labour ministry

website. Manage Trade Unions. Use alternative materials / substitutes wherever

possible Hire experienced and competent staff with Integrity .

Goals of a commercial enterprise

Use modern technology /proven cutting edge Technology. Unit cost of production should be lower than your competitors The organization should have a clear mission, vision, quality policy

and organization chart. Monitoring the progress of all departments on a weekly/daily basis. Use latest tools & software for IT/telecom/security and designing

(CAD/CAM) Minimize organization politics by incentives schemes for Team

productivity. Improve Customer service that is ,follow customer centric policies. Move UP the Value Chain. Work 300 days a year. Use latest Management Principles.

Objective (s) of SCM / Procurement session. What is Supply Chain Management ? What is Procurement ? Sample Products / Solutions Key Terms Porter’s Five Forces Model Breakup of Construction Costs Block Diagram of Purchase proceedure by Govt/PSU/TNC organizations Qualities of a good Procurement Manager Procurement Policy (Indian Railways). E-Procurement by DGS&D. Samples Tenders from NTPC, BHEL, SAIL, MES, PWD, CPWD, etc. Case study on e-Procurement by Andhra Pradesh Govt.. SAP R/3 and Block Diagram References

Definition (Supply Chain Management)

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).

APICS Dictionary defines SCM, as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally."

B2B products for Procurement

Tata Motors DTC Bus Intergraph CAD Solution (PDS)

Chetak Helicopter (HAL) BHEL Gas Turbine

3D CAD Solutions

Supply Chain Management (Block Diagram)

Terms

RFI – Request for InformationAn open enquiry that spans the market seeking broad data and understanding.

RFQ – Request for QuotationAn opportunity for potential suppliers to competitively cost the final chosen solution(s).

RFT – Request for TenderAn opportunity for potential suppliers to submit an offer to supply goods or services against a detailed tender.

RFP – Request for ProposalSometimes based on a prior RFI; a business requirements-based request for specific solutions to the sourcing problem.

FOB, CIF, FOR and Rate Contract Definition

Freight On Board. FOB specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability for goods lost or damaged in transit from the seller to the buyer.

CIF - A trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.

FOR , Abbreviation: f.o.r. (of a consignment of goods) delivered to a railway station and loaded onto a train without charge to the buyer

A Rate Contract or a Rate Agreement (RC in short) is a procurement cost reduction stategy aimed at standardizing procurement prices for commonly procured, homogenous and price varying inputs. DGS&D (Government Department) does annual rate contract with eligible suppliers for supply of goods to various government agencies.

Request for Quotation (RFQ) RFQ’s are best suited to products and services that are as standardised and as

commoditised as possible. Why? To make the suppliers’ quotes comparable. An RFQ is a solicitation sent to potential suppliers containing in exacting detail

a list or description of all relevant parameters of the intended purchase, such as:

Personnel skills or competencies Part descriptions/specifications or numbers Quantities/Volumes Description or drawings Quality levels Delivery requirements Term of contract Terms and conditions Other value added requirements or terms Draft contract

Price per item or per unit of service is the bottom-line with RFQ's, with other dimensions of the deal impacting the analysis process as determined by the buyer. Supplier decisions are typically made following a comparison and analysis of the RFQ responses.

RFQs are typically used as supporting documentation for sealed bids (either single-round or multi-round) and may be a logical pre-cursor to an electronic reverse auction.

Logistics

Logistics is the management of the flow of goods and services between the point of origin and the point of consumption in order to meet the requirements of customers.

Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility.

Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software.

Letter of Credit

A standard, commercial letter of credit (LC) is a document issued mostly by a financial institution/Bank, used primarily in trade finance, which usually provides an irrevocable payment undertaking.

The letter of credit can be a source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. In such cases the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies (UCP 600 being the latest version).

FORMAT FOR LETTER OF CREDIT(FOB) FROM :( NAME * & ADDRESS OF OPENING BANK ) TO :( NAME & ADDRESS OF ADVISING BANK ) (For Shipments from Haldia ) STATE BANK OF INDIA OVERSEAS BRANCH KOLKATA SWIFT CODE SBININBB106 (For Shipments from Vizag ) STATE BANK OF INDIA OVERSEAS BRANCH VIZAG SWIFT CODE SBININBB123 40A TYPE OF L/C :IRREVOCABLE 20 L/C Number : 31C DATE OF ISSUE : 31D DT. & PLACE OF EXPIRY : __________________________________IN INDIA 50 NAME & ADDRESS OF THE: APPLICANT 59 NAME & ADDRESS OF THE: Steel Authority of India Limited, BENEFICIARY Central Marketing Organization, Ispat Bhawan 40 J.N.Road, Kolkatta-700071, India 32B AMOUNT OF CREDIT IN : US DOLLARS /EURO/ANY OTHER FREELY EXCHANGEABLE CURRENCY (IN FIGURES & WORDS) 39A PERCENTAGE CREDIT : AS PER CONTRACT AMOUNT TOLERANCE 41A CREDIT AVAILABLE WITH: STATE BANK OF INDIA, KOLKATA/VIZAG and or ANY BANK IN INDIA CREDIT AVAILABLE BY : NEGOTIATION 42C DRAFTS : AT SIGHT 42A DRAFTS TO BE DRAWN ON: 43P PARTIAL SHIPMENT : AS PER CONTRACT 43T TRANSHIPMENT : AS PER CONTRACT 44A SHIPMENT FROM : 44B SHIPMENT TO : 44C LATEST DATE OF SHIPMENT : 45A DESCRIPTION OF GOODS : a) Description of Materials b) Size ( in mm) (except for Pig Iron) and Quantity (in MT) c) Specification d) Tolerance (except for Pig Iron) e) Quantity f) Quantity Tolerance g) Price per MT (in USD/Euro/any other freely exchangeable currency)

Contract Definition A voluntary, deliberate, and legally binding agreement between two or more

competent parties. Contracts are usually written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.

A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. However, while all parties may expect a fair benefit from the contract. It does not follow that each party will benefit to an equal extent. Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void (see void contract) or voidable ).

Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. Some contracts, (such as for sale of real property, installment plans, or insurance policies) must be in writing to be legally binding and enforceable. Other contracts (see implied in fact contract and implied in law contract) are assumed in, and enforced by, law whether or not the involved parties desired to enter into a contract.

B2B Contract

B2B ConsumerB2B Marketer Business Contract

Goods services

Goods services

Payment

“Works Contract” means a contractwherein, —(i) transfer of property in goods involved in the execution of such contract is

leviable to tax as sale of goods, and(ii) such contract is for the purposes of carrying out— a) erection, commissioning or installation of plant, machinery, equipment or

structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purpose of commerce or industry; or

c) construction of a new residential complex or a part thereof; or d) completion and finishing services, repair, alteration, renovation or

restoration of, or similar services, in relation to (b) and (c); or e)turnkey projects including engineering, procurement and construction or

commissioning (EPC) projects”

Works Contract

Liquidated Damages

‘Liquidated Damages’ means that it shall be taken as the sum which the parties have by the contract assessed as damages to be paid whatever may be the actual damage.

The parties to the contract may agree at the time of contracting that, in the event of a breach, the party in default shall pay a stipulated sum of money to the other, or may agree that in the event of breach by one party any amount paid by him to the other shall be forfeited. It is a genuine “pre-estimate of damages” likely to flow from the breach.

However, this liquidated damage shall be distinguished from the term “penalty” which is an amount intended to secure performance of the contract.

Arbitration ‘Domestic arbitration’ means an arbitration relating to disputes arising out of legal

relationships, whether contractual or not, where none of the parties is,- (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) an association or a body of individuals whose central management and control is exercised in

any country other than India; or (iv) the Government of a foreign country,

and shall be deemed to include, international arbitration and international commercial arbitration where the place of arbitration is in India.

International arbitration’ means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, and where at least one of the parties is,-

(i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) an association or a body of individuals whose central management and control is exercised in any country

other than India; or (iv) the Government of a foreign country:

(f) International commercial arbitration’ means international arbitration considered as commercial under the law in force in India;

4 per cent Service Tax on Works Contract based on payment received

• The Government has revised the rate of service tax from 2 per cent to 4 per cent under composition scheme on Works Contract vide Service Tax Notification No.7/2008 dated 1st March 2008.

• Doubts were raised whether the changes of the rates on the work contract services revised in the Budget 2008, from 2% to 4% would be effective from 1st March, 2008 in cases of ongoing contract i.e. where these services were agreed to be provided prior to 01.03.08 but the actual provision of the services took place after 01.03.08.

• It has been clarified by CBEC that the service tax becomes chargeable on receipt of the payment and on the amount for receipt. Therefore, the rate of 4 per cent is applicable for the work contract where the payment of service is receipt on or after 01.03.08

Michael Porters Five Forces ModelForce 1: Barriers to entry Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry.

This can involve for example: Cost advantages (economies of scale, economies of scope) Access to production inputs and financing, Government policies and taxation Production cycle and learning curve Capital requirements Access to distribution channels Patents, branding, and image also fall into this category.Force 2: Threat of substitutes Every top decision makes has to ask: How easy can our product or service be substituted?

The following needs to be analyzed: How much does it cost the customer to switch to competing products or services? How likely are customers to switch? What is the price-performance trade-off of substitutes? If a product can be easily substituted, then it is a threat to the company because it can

compete with price only.

Michael Porters Five Forces Model (Cont.)Force 3: Bargaining power of buyers Now the question is how strong the position of buyers is. For example, can your customers work

together to order large volumes to squeeze your profit margins? The following is a list of other examples:

Buyer volume and concentration What information buyers have Can buyers corner you in negotiations about price How loyal are customers to your brand Price sensitivity Threat of backward integration How well differentiated your product is Availability of substitutes Having a customer that has the leverage to dictate your prices is not a good position.Force 4: Bargaining power of suppliers This relates to what your suppliers can do in relationship with you. How strong is the position of sellers? Are there many or only few potential suppliers? Is there a monopoly? Do you take inputs from a single supplier or from a group? (concentration) How much do you take from each of your suppliers?

Detailed Project Report(DPR)

Vizag Steel Plant (now called) (Rashtriya Ispat Nigam Ltd.) Consultant M.N Dastur

Vizag Steel (RINL) Plant DPR

Vol. – 1 – Summary Vol. – 2 – Product Mix, Raw Material, Production Technology and

Plant Layout Vol. – 3 – Coke and Iron making Vol. – 4 – Steel making and Rolling Mills Vol. – 5 – Power, Lighting and Instrumentation Vol. – 6 – Utilities and Environment Control Vol. – 7 – Auxillary facilities Vol. – 8 – Plant Construction Vol. – 9 – Plant Management and Man power Vol. – 10 – Costs, Financial Analysis and Future Expansion Vol. – 11 – Drawings – Raw Material, Plant site and General Layout

M.N.Dastur was Consultant to RINL


Vol. – 12 – Drawings – Coke Ovens and By-product plant Vol. – 13 – Drawings – Sinter Plant Vol. – 14 – Drawings – Blast Furnace Vol. – 15 – Drawings – Steel Melting Shops Vol. – 16 – Drawings – Rolling Mills Vol. – 17 – Drawings – Iron/Steel Making Vol. – 18 – Drawings – Power Plant Vol. – 19 – Drawings – Power Systems, Lighting Vol. – 20 – Drawings – Water systems Vol. – 21 – Drawings – Utilities, work transportation / labs Vol. – 22 – Drawings – Repair shop and storages Vol. – 23 – Drawings – Ancillary Buildings and Plant Construction


Vol. – 24 – General specifications Vol. – 25 – Technical specs for RM handling Vol. – 26 – Technical specs for Coke ovens Vol. – 27 – Technical specs for Sinter plant Vol. – 28 – Technical specs for Blast furnace Vol. – 29 – Technical specs for Steel melt shops Vol. – 30 – Technical specs for Rolling mills Vol. – 31 – Technical specs for Power plant Vol. – 32 – Technical specs for Utilities Vol. – 33 – Technical specs for Auxiliary facilities

M.N.Dastur Consultants

RINL (Vizag)

Purpose of Procurement To identify competent procurement team , purchase processes ,Budgeting To follow Government procedures for File approval, Fund Allocation, Fund

Disbursement. To identify Engineering Consultants with proven track record & settle terms. DPR to define the scope of various Tenders, Identify Potential list of Eligible

suppliers, to reduce time of purchase, Competitive transparent Bidding, Contract drafting on CIF basis, Advance Payments thru L/C against Bank Guarantee, Ensuring physical delivery, Installation of Equipment, Trial Production, Quality Checking as per standards, Warranty Services, Mile Stone Based Payments.

To have integrated approach towards desired objectives compliant with drawings, specifications, standards, quality, time deadlines.

To examine tax benefits under Govt policy applicable to backward areas (if any) To examine E-procurement as viable alternative to Manual Tendering. To integrate Procurement with SAP R/3 software

Procurement Management

Procurement management process involves managing the order, receipt, review and approval of items from suppliers. Procurement management also specifies about the management of supplier relationships, to ensure better service. This is a critical task in Procurement Management. In short, the procurement process helps you "get what you have paid for".

Prof. Sanjeev Bahadur Prof. B.K. Jha Hitesh Gupta

Qualities and Job description of a Procurement Manager

To ensure that procurement and supply of materials out of the warehouse to keep abreast of the situation, the material for the production of a lack of preparation for the corresponding procurement.

Development of materials procurement plan: schedule (generally two weeks or a month for a period) formulation material procurement plan, including the focus on the choice of materials, material price, quantity, supplier selection.

Specific procurement: including mining prices, bargaining, negotiation conditions with suppliers, suppliers of materials and the introduction of delivery methods.

Materials Management: including an examination of the situation and out of the storage of materials and found that best-selling and slow-moving materials, slow-moving material handling, sorting stock, inventory and so on.

Storage materials, staff training: the training materials to assist staff members to understand the material properties of the material and characteristics, to master certain material knowledge for materials operating conditions.

Buyer's quality requirements in terms of procurement staff, ability and quality are higher, these requirements include the following: Rich commodity market knowledge. In the company's ability to communicate with other departments. Familiar with the business operations and sales. And have a strong bargaining power bargaining. With a hard-working professionalism. The physical good, look smart and capable. There is a strong judgments and decision making.

PROCUREMENT IN INDIAN RAILWAYS

Indian Railways

Indian Railways are one of the largest railway system under single managament.

Total route KM is > 63,465 KM No of locomotives > 7900 No of freight wagons > 222,370 No of passenger coaches > 42,440 No of persons employed > 1.6 million

Purchases by Indian Railways

Indian Railway’s : Annual Turnover : > Rs. 500 billion Annual purchases for supply of goods including

Fuel oil : > Rs 130 billion Annual Works : > Rs 120 billion Purchases are made through process of

competitive bidding. High value purchase mainly through Advertised

Tenders.

Railways Procurement Policy

I.R. have formulated well established procurement policies which have evolved over central theme of ensuring

Transparency Fair play Quality procurement Competition and Equal opportunity to all eligible

vendors

Purchase of goods at Railways

Procurement of goods, Raw materials, and equipments for Production, Operation, & maintenance of large fleet of Rolling stock of all types.

Rails, Track machines/fittings, Wheels\Axles. Steel, Cement for construction work. Diesel, Oil and lubricants, chemicals. Workshop plants, machines and tools. Rolling stock spares. Electrical, Signaling and Telecom equipment and spares. Staff welfare, healthcare and passenger amenity items.

IR Purchase Breakup

Indigenous purchase : More than 95%

(Rs 124 bn)

Imports : 5% (Rs. 6 bn)

PROCUREMENT POLICY (I.R)

Procurement are made through process of competitive bidding.

Advertised Tender documents are uploaded on website for free access, viewing and downloading.

Vendor approvals are based on Capacity assessment coupled with Quality Assurance Plan.

Centralized vendor approvals for safety, Critical and Vital items.

Vendor performance Assessment integrated with procurement.

Procurement Procedure (I.R)

Indigenous Procurement : Limited (selective) Tenders : Upto Rs. 5 lacs

Advertised Tender : Above Rs. 5 Lacs

Imports: Global Tendering Pre-dispatch inspection agency. R.D.S.O. Lucknow and RITES Procedure for charging Bid and Contract security. Bank Guarantee (B.G.) for warranty obligations.

Procurement Procedure (Contd)

Indigenous: Payments after receipt of materials for Road dispatches,

against proof of dispatch by Rail. Levy of liquidated damages for delays in supply. Joint Inspection in cases of Rejections and Recoveries

thereafter. Purchases are generally based on Firm Price. Price variation clause permitted on merits. Safety, critical, vital and high value items procured from

approved sources only. Multi-sourcing for Safety, critical, vital & high value items.

Quality procurement plan (I.R)

R.D.S.O, Lucknow (Central approving Agency) for vendor approvals.

Source approval are for Developmental and Bulk ordering.

Manufacturing and Technical capabilities of indigenous vendor pre-examined by RDSO before approvals.

Periodical monitoring of approved sources for quality performance.

Railways Evaluation Criteria

Offers evaluated based on total destination cost.

Indigenous offers evaluated by including all Taxes, Duties and Inland freight upto Destination.

Import offers evaluated by including FOB Cost, Insurance, Sea/air freight not included)

Issues to be addressed for Government Procurement Agreement.

Threshold level for Central Govt. as per WTO-GPA : > Rs. 80 Lacs.

With such low threshold value GPA will cover more than 50% of I.R. purchases.

Presently Global Procurement is adopted by Central Govt. for high value tenders only.

Capacity assessment is still required for foreign vendor for Q.A.P. on par with indigenous venders.

Ministry of Railways/RDSO to be given full freedom for overseas travel for Inspection of foreign vendor.

Existing price/purchase preference to Indian SSI/PSU need to be reviewed.

Issues to be addressed

Ministry of Petroleum to allow GPA for POL* Items.

Existing conditions for shipping need to be revised to allow shipment of goods without restricting Shipment through SCI/Air India.

Payment to Indian suppliers are made after receipt of goods while in Imports payments is thru Letter of credit. This need to be reviewed for uniformity.

*POL = Petroleum, Oil, Lubricants


GPA will cover more than 50% of Railways procurement value with threshold value>Rs. 80 lacs.

Price escalation clauses where ever necessary can not be identical between domestic and foreign suppliers.

When different Zonal Railways issue tenders for identical items with varying tender values, some tenders may attract GPA while others may not because of threshold value. This shall pose problems within Indian Railways


For delays in supply Liquidated damages are levied. Such penalty deductions need to be incorporated in import supplies also while obtaining payments thru L.C.

Most indigenous purchases are made with Firm price. ‘Exchange rate fluctuations will render Import prices (in Rs. terms) variable. They shall never be firm, in Rs terms.


Need for providing base service setup in India for rendering after sale service, warranty obligations and service support at each user location points.

Foreign firms to setup adequate infrastructure in India for meeting pre-inspection, rejections, follow up and post warranty maintenrise etc.

Procedural Implications:

Expensive procedural obligations to fulfill stringent transparency norms.

Likely delay in tender finalization process. Decision to abandon purchase in GPA tenders may be

subjected to challenge and scrutiny. Quality and capacity assessment of foreign vendors will

be prohibitively costly when compared to domestic suppliers.

Pre-inspection at overseas will be costly. Payment terms are not at par between domestic and

foreign suppliers.

Policy review

Existing practices need to be reviewed such as : Selective/restrictive advertisement. Splitting of awards to more parties. Negotiations in routine manner with lowest (L1)

bidder. Domestic price and purchase preference

guidelines. Opening time for GPA will be longer.

E-procurement Definition E-procurement (electronic procurement, also known as

supplier exchange) is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, Work and services through the Internet as well as other information and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning.

E-procurement Web sites allow qualified and registered users to look for buyers or sellers of goods and services. Depending on the approach, buyers or sellers may specify costs or invite bids. Transactions can be initiated and completed. Ongoing purchases may qualify customers for volume discounts or special offers.

Examples of E-procurement in India

DGS&D Govt. of Andhra Pradesh Govt of Karnataka Tradeindia.com SAIL NTPC BHEL Tendertiger.com

E-PROCUREMENT

in

Directorate General of Supplies & Disposal

(DGS&D), New Delhi

E-Procurement - Components

E-Purchase Registration Store coding Technical Particulars Evaluation of Bids Award of Rate Contract

E-Inspection / Supply Supply Order Inspection Dispatch Details Receipt Details

E-Tendering Tender Notice Tender enquiry Bid submission Bid opening

E-Payments Bill submission Processing Payments Debit Adjustments Status Complaints

Background - OrganizationDGS&D - a Central Purchase Organization under

Govt of India Headquartered at New Delhi with three regional purchase

offices in Metros and 27 QA offices in major industrial towns

Purchase directorates organized commodity wise to facilitate maintenance of data, market intelligence, technological advancement in product and processes

Quality Assurance offices located near users and industry to facilitate quick response

Technical and multi-disciplinary workforce including two Group “A” engineering services recruited thru UPSC

ISS (Purchase) officers posted in other ministries to assist in procurement of exclusive item

Background – Role (DGS&D) DGS&D is engaged in diversified activity like-

Conclusion of Rate Contracts for over 350 product categories involving 20,000 items besides spares etc.

6,000 GoI users spread across the country Serves / facilitates over 10,000 tenderers including 2600

DGS&D registered suppliers, Pre-despatch inspection against DGS&D contracts and

direct orders on request Formulate procurement policies and procedures Cargo clearance at major ports Provide consultancy in the procurement management

Goods procured worth over Rs 3500 Crores during 2004-05

DGS&D provides single point contact for Govt users and vendors/suppliers for procurement of commonly used goods

Increased Transparency and Wider Competition

Simplify and Speed up Tendering Processes

Real Time Generation of Detailed and Accurate Data –

Elimination of Human Error

Seamless sharing of Information

Ease of Operation and Quicker Decision

Comprehensive Website to Facilitate Tendering, Contracting,

Ordering and Retrieval of Information to Authorized

Functionaries - Online Interaction avoiding Physical Visits

Facilitating Pre and Post Contract Management

Reduction In Cost of Government Purchases

E-Procurement - Benefits

Challenges (1)

Integration of Nation wide spread of DGS&D Purchase and QA offices

Multiple Matrices of Rate Contract as against Single/Limited Matrix of Fixed Quantity (Ad-hoc) Contracts

Integration of Large Govt user base including those in far flung areas

(over 6000) Tenderers spread across the country (over 10000) Registration of vendors (over 2600)

Management of over 2,500 Contracts and 60,000 supply orders

Different Purchase Directorates have different requirements

Challenges (2)

Adherence to GFR, DGS&D Manual, CVC Guidelines and other Instructions issued by Government

Interface with External Agencies like NSIC, DGQA (Defence), BIS etc.

People and Process Change management

Technical challenges like IT Infrastructure, Data Security, backups, etc.

DGS&D

A comprehensive DGS&D website facilitates – A single access point for DGS&D officers, suppliers

and customers Downloading of DGS&D Manual, forms, conditions of

contract, circulars Notices, agenda and minutes of the Consultative

Meetings Suppliers registration Download of summary and full text of Parallel Rate

Contracts Creation and Hosting of

Tender enquiries & tender notices and corrigenda Rate contracts, Technical specifications, Store directory.

DGS&D Website Provides access to Indentor’s page and

Vendor’s page for the following activities – Indentors Page-

Online placement of supply ordersEntering Receipt Particulars of storesIntimation regarding shortages/qualitySuggestions for bringing new items on RC

Vendors pageOnline inspection callEntering dispatch particularsOnline submission of BillsSuggestions for bringing new items on RC

e-Procurement Solution – Interactive Modules - Current Status Store Directory – Coding of All RC items Complete Registration module – Database of all registrations (over 2600) Tender module –

Tender Notices & Tender Enquiries – 225 RC cases since Jul’05 Rate Contract Module – 220 RC cases since Jul’05 involving over 1300 parallel RCs.

Other Parallel Rate Contracts not due for renewal placed ondatabase

Inspection Module Supply order module- Lateral entry of over 5000 supply orders Inspection note module – over 3800 inspection notes

e-Tendering E-Tendering System

Online Publishing & download of tender enquiries Supplier registration Online bid submission by suppliers Online bid opening & witness by suppliers Spot Price Comparative Chart Security Audit by STQC

65 RC tenders opened online Over 600 bids submitted through e-tendering

(https://dgsnd.govtprocurement.com)

e-Tendering - Benefits

To DGS&D : Greater Transparency Reduced process cycle time Reduced costs Improved image Instant availability of real time information Cartel Breaking

To Suppliers: Reduced costs Convenience of transacting online with DGS&D No physical visits to DGS&D No pressure of cartel Increased opportunities

e-Payment

E-Payment System Documents receipt

Bill submission

Processing

Payments

Debit adjustments

CVC Circular No. 4/3/07Tendering process-negotiations

As post tender negotiations could often be a source of corruption, it is directed that there should be no post-tender negotiations with L-1, except in certain exceptional situations.

Such exceptional situations would include, procurement of proprietary items, items with limited sources of supply and items where there is suspicion of a cartel formation.

The justification and details of such negotiations should be duly recorded and documented without any loss of time.

Tender announcements by EIL

Tender announcements from CPWD

Tender announcements from NTPC

Tender announcements by MES

Tender announcements by SAIL

Tender announcements by NHAI

E-Procurement in Government of Andhra Pradesh. (Case Study)

The Govt. of AP has implemented many statewide e-Government applications when the Central Government enacted the IT Act of 2000 to provide legal recognition to electronic transactions. As a consequence, GoAP has set up an E-Procurement Marketplace, linking government departments, agencies and local bodies with their vendors.

Govt AP e-Procurement Architecture Diagram

E-Procurement at Govt of AP

Main objectives of e-Procurement initiative are to: reduce the time and cost of doing business for both vendors and government; realize better value for money spent through increased competition and the prevention of cartel formation; standardize the procurement processes across government departments/agencies; increase buying power through demand aggregation; provide a single-stop shop for all procurements; allow equal opportunity to all vendors; bring transparency and ultimately reduce corruption.

E-Procurement in Government of Andhra Pradesh.

Before introduction of an e-Procurement platform, procurement in Government departments was carried out through manual tendering process. Process involved obtaining internal approval of project, publishing a Notice Inviting Tenders (NIT) in Newspapers, bid submissions (bulky volumes of paper) by suppliers, bid evaluations by buyers, and finally, awarding of procurement order and signing of agreements.

E-Procurement at Govt of AP

The complete process required a long chain of internal authorizations and scrutiny (at times involving several departments), several visits by suppliers to departments, and the generation of reams of paper-based statements and evaluations. The manual tender system was suffering from following deficiencies:

E-Procurement in Government of Andhra Pradesh, India

Discrimination and delay in issue of tender schedules to suppliers

Cartel formation to suppress competition Physical threats to bidders Tender Boxes at Multiple locations Tampering of tender files Delays in finalization of tenders Human interface at every stage Lack of Transparency


Severe shortcomings in manual tender system had an adverse effect on the reputation of Government departments. Delays in finalisation of suppliers for materials and services for government projects had crippling impacts on the completion of projects and delivery of services to the citizens. A cabinet sub- committee on tender reforms instituted by GoAP in the year 2000 recommended e creation of an e-Procurement market place.

This would facilitate online tendering based on Internet technology to provide ‘any where any time’ access to the bidders for participating in tendering. This would also eliminate the non value adding activities like manual sale of tender documents, manual opening and reading of bids, preparation of comparative statements (as they are automatically available), audit/cross check of comparative statements, time spent in movement of files , manual creation of purchase order and delivery schedule etc.


The first challenge was to arrive at a sustainable business model with proper implementation strategy. The GoAP considered the following three alternative business models for implementation of e-Procurement. Government owned – government operated Government owned – operated by a private operator Public Private Partnership model


The second challenge was to ensure interdepartmental coordination, as e-Procurement centralizes the processing of tenders and touches several departments located in different parts of the state. A high level Steering Committee (Project Implementation Committee) chaired by the Chief Secretary of the state, comprising of Secretaries, Heads of participating departments and representatives of the private partner was formed to promote coordination.

The Steering Committee dealt with issues related to Business Model, selection of private partner, interdepartmental coordination, Business Process Reengineering and important issues in the implementation of the project.

The Information Technology and Communications Department of the GoAP was made the nodal agency to oversee the implementation of the project.


Third challenge was Change Management as implementation involved adoption of new ways of doing things for a variety of stakeholders. Setting up the e-Procurement exchange was not difficult in terms of its technology components, but getting stakeholder buy-in to adopt the platform was a big challenge.

The various steps taken to manage Change with different Stakeholders are enumerated below:

E-Procurement in Government of Andhra Pradesh

Fourth challenge was resolving the security and authentication issues of the platform. Stakeholders have to be completely convinced that the transactions on the platform are secure. The identity of the participating bidders, and the quotations that the bidders make, are very sensitive information in the entire tendering process.

The e-Procurement solution was designed with extensive security features to help ensure that all activities are logged, no unauthorized person has access to data, all sensitive data is encrypted, and that the system can be restored in a minimal time in case of a disaster or system crash. A sound security policy for e-Procurement has been implemented using the following features to ensure security in the platform.

Security in E-Procurement

Two-factor authentication Digital signatures to ensure non-repudiation Bid encryption at the database Online Antivirus scanning 128 bit SSL encryption Audit trail of each activity Privilege-based user access Time stamping Firewall for screening system access Access control system Intrusion detection system (network and host) Regular back up of data Disaster recovery site

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Year No. of Departments / agencies

Value of transactions completed $ (Million)

No. of transactionsprocessed

Percentage of eProcurement out of total Government spend

2003-04 8 447 564 20%

2004-05 7 Departments9 PSUS 17 Municipalities

3,522 3746 80%

2005-06 8 Departments13 PSUS 51 Municipalités 5 Universities

3,740 7931 90%

Benefits and Costs

Reduction in tender cycle time: In the pre e-Procurement era, the departments used to take 90-135 days for finalization of high value tenders. The tender cycle time has gradually come down to an average of 42 days over a period of one year and further reduced to 35 days at the end of the second year.

E-Procurement in Government of Andhra Pradesh

Cost Savings: One way to estimate cost savings is to compare the percentage discount of Tendered Contract Value over the Estimated Contract value for service contracts awarded before and after the implementation of the e-Procurement system.

Tenders processed through the e-Procurement platform in the pilot phase during 2003-04, the first year of the initiative, yielded a reduction of 16% in the quotations in comparison to the previous years when the procurement was manual.


Tender Analysis

Year Mode of procurement

No of tende-rs

EstimatedContract Value in $(Million)

TenderedContract Value in $(Million)

Percentage discount

2001-02 Conventional Mode

188 177 166 - 2.65


125 126 115 -8.65


53 83 75 -9.00

2003-04 eProcurement Mode

107 166 124 -25.00

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References Member,Railway Board, Ministry of Railways, Govt. of India DGS&D, Ministry of Commerce, Govt. of India Construction Development Council / Planning Commission Surveys Govt. of Andhra Pradesh (E-Procurement Case Study) BHEL EIL NTPC CPWD PWD/DDA MES SAIL Intergraph, JCB, Tata Hitachi ,BHEL, Fanuc CNC, Tata Motors ,HAL NHAI Wikipedia Manager, e-Procurement, P. RamaRaju, Chief Engineer, Irrigation Deptt., Govt of Andhra Pradesh ICAI – Chartered Accountant Total Project Management, P.K.Joy, Macmillan Publishers Jupiter Research Survey Economics Times / Hindustan Times SAP, Germany CVC website CAG Report on CWG Law Commission Michael Porter’s Five Forces Model

Thank You

Thanks to all participants in the MDP Program on” SCM, Procurement & E-Procurement” session.

Affiliation(s)

Thanks to Mr. Mayur Sharma,PA for preparation of this PPT.

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