Procurement and Inventory Mgmt

REPORTOF

PROCUREMENT AND INVENTORY MANAGEMENT

ON

PROCUREMENT AND INVENTORY PRACTICES AT

TUWAIRQI STEEL MILL LIMITED

Institute of Business ManagementC o l l e g e o f B u s i n e s s M a n a g e m e n t

This Report is prepared by



JEHANZEB ANEES (MBA – IM - 6944)

As a part of


Course under theSupervision

Of

FAIZUL ISLAM

Jehanzeb Anees Page 2



The Exordium

With the Name of Allah WHO is most loving and the Merciful!

Praise to Allah, Lord of the creation, the Compassionate, the

Merciful, the King of the judgment day! You alone. We pray,

and to you alone. We pray for help, guide us to straight path,

the path of those whom you have favored, not neither of

those who have incurred your wrath, nor of those who gone

astray.

(Al Quran)


http://images.google.com.pk/imgres?imgurl=http://www.aps.ai/images/flowers.jpg&imgrefurl=http://www.aps.ai/services.php&usg=__fXZPL9zJvkezcfw2mGuNhJ7m_0g=&h=300&w=301&sz=23&hl=en&start=23&um=1&itbs=1&tbnid=NZGRTq4_jyaExM:&tbnh=116&tbnw=116&prev=/images?q=flowers&ndsp=18&hl=en&rlz=1R2SNYG_enPK348&sa=N&start=18&um=1%00%E5%A1%B9%EF%92%81%E1%B4%BB%E4%A1%BF%E2%B2%AF%E5%B6%82%E8%97%84%E6%8C%A7%00%00%EA%AE%A5



Procurement and Inventory Management – Research Report Letter of Transmittal

10th August 2011

The Course lecturer

Procurement and Inventory Management

Institute of Business Management

Karachi.

Dear Mr. Faizul Islam,

Subject: Research Report on Procurement and Inventory Practices at Tuwairqi Steel Mill Limited

We feel immense pleasure in presenting to your good self, the term report as part of our course

requirement. We found this report to be truly challenging in many aspects, indeed very interesting

in relation to the various interpretational and engrossing exercises. Writing this report itself was

truly comprehensive learning experience.

The purpose of this report is to provide Procurement and Inventory practices at Tuwairqi Steel Mill

Limited which is considered to be the most important element for any organization in the world.

This report covers components of procurement and inventory, its practical advantages and many

more.

I have tried my level best to complete the report with respect to the desired requirements.

However, if any explaining is required, I would be honored to oblige. Kindly accept this humble

effort of bringing forward our research and findings on the subject matter.

Sincerely,




Jehanzeb Anees

(MBA – Industrial Management)

I am gratified with the core of our heart to “Almighty Allah” who made it possible to complete this

report.

I especially thanks to very loving and caring teacher Sir. Faizul Islam and friends not only

encourage me but guide me every time.

I must take this opportunity to full great pleasure to our teacher of Procurement and Inventory

Management Sir. Faizul Islam for his continuous encouragement support and lead toward the

report.

The way he taught us in the Procurement and Inventory Management course is immense and

really give us the clear idea about the course which will help us in the future by applying the

concepts that we have learn in our entire semester.




TABLE OF CONTENT

S.NO DESCRIPTION PAGE NO

1. Executive Summary 7

2. Introduction of the Company8-12

3. Pakistan Steel Industry Overview13-15

4. Production of Tuwairqi Steel Mill Limited16-23

5. Procurement Procedures at Tuwairqi Steel Mill Limited24-41

6. Inventory Procedures at TSML42-43

7. Critical Analysis44-46




8. Recommendations47-49

9. Raw material to be extracted50

10. Conclusion51

11. References52

EXECUTIVE SUMMARY:-

Al Tuwairqi Holding emerged in 1977 on the map of kingdom of Saudia Arabia and today become

the omnipresent privately owned steel organization in the Middle East and expanding its

manufacturing beyond Gulf regions, south East Asia and Europe. TSML is using a Midrex process

or ITMK-2 which is initial of its sort in Pakistan and having reduction furnace height of 107 meters.

TSML Midrex plant is proficient of producing 160 Ton / Hour of DRI with an 8000 man hours , this

equates to an annual production of 12,8,0000 ton per year. At TSML site there are integers of

departments which are involved in the daily operations of DRI plant. At site project planning

department plays an imperative role by charitable the endorsement of funds to the concerned

department for the procure of various goods. At planning department they have specified a

purchase process through which the demand raiser canister acquires any goods for its project

works by filling Material Purchase requisition form which contains all relevant information about

the items with its value. Next come HSE department which are greatly focused at TSML site as

they say “SAFETY COMES FIRST”. At TSML HS department provides every utensil to its

workers and employees when they work or visit the plant. Document and control department holds

each and every information regarding TSML plant in the form of specification books, plant layout

and others. Fabrication facility department at TSML involves in the manufacturing of any part

relating to the plant site as they are equipped with the state of the art machineries such as CNC




milling machines and etc. Store department at TSML keeps large amount of inventories such as

plant parts, stationeries which they contribute to the concerned departments on demand. At last

Procurement department purchases diverse goods for the smooth operation of DRI plant and its

related departments. At TSML different departments are well organized in terms of their smooth

process which results in the completion of work on time. TSML procurement and inventory

department are playing their important role in order to acquire the raw materials which can run the

operations of the steel mill. ABC analysis should be implementing in the procurement and

inventory department so that the purchasing can be done in more and more transparent and in

correct manner.

INTRODUCTION OF THE COMPANY:

About Tuwairqi Steel Mill

Tuwairqi Steel Mills Limited (TSML) is a state of the art environment-friendly steel manufacturing

project which is based on the world’s most advanced Direct Reduced Iron (DRI) technology of the

Midrex Process owned by Kobe Steel of Japan. With a designed capacity to produce 1.5 million

tons of high-quality DRI per annum, TSML will be the largest private-sector integrated steel

manufacturing unit in Pakistan.

TSML’s complex spreads over an area of 220 acres at Port M Qasim, Karachi. It is being set up in

Pakistan by Al Tuwairqi Holding (ATH), the largest private sector steel producer and one of the

leading business concerns in the Kingdom of Saudi Arabia. Al Tuwairqi Holding includes nine

large industrial units in Saudi Arabia, UAE and the United Kingdom; seven of which are

metallurgical and steel plants besides one Electrical Switch Gear manufacturing company and a

300 megawatt power generation plant. In addition, three mega projects are also in progress: one

in Dammam, one in Sharjah and one in Pakistan. ATH's growth today has gone beyond the

boundaries of Saudi Arabia and encompasses areas of Middle East, South Asia & Europe.




Brotherhood Cast in Steel

The time tested friendly and brotherly relations between Saudi Arabia and Pakistan is a

“Brotherhood Cast in Steel”. The two Muslim countries have been a support for each other in thick

and thin and have always demonstrated that the hearts of the two nations beat together.

To further strengthen this relationship, Al Tuwairqi Holding, with the support and encouragement

of the Government of Pakistan, decided to take the bold initiative of bringing a state-of-the-art

technology of steel making in Pakistan. About 30 years ago, Al Tuwairqi Holding embarked upon a

journey with the visionary approach and dynamic leadership of Dr. Hilal Hussain Al Tuwairqi & Mr.

Muhammad Tariq Barlas.

Today, the Al-Tuwairqi family, with over 2500 members, is already making a difference and

INSHAALLAH will continue to do so.




Director (Projects)

Mr. Zaigham Adil Rizvi is a figure well known and respected in the industrial and corporate sectors

of Pakistan and is a distinguished personality in the engineering community. Adil is a

philanthropist, who strongly believes in paying back to the society and participates generously in

welfare services and social development programs.

He holds a Masters degree in Electrical Engineering, besides being Masters in Economics. His

professional career spreads over a span of 28 years. He has worked for various top-notch public

and private sector companies, both in Pakistan and abroad. He possesses outstanding leadership

skills and believes in unite and lead.

He has participated in several national and international conferences, moots

and seminars and is an effective speaker too. Adil has various medals and

awards to his credit. His performance-driven behavior towards work and a very

strong faith in sincerity to purpose, helps him achieve goals even under tough

circumstances.

He is currently working in the capacity of Director (Projects), Tuwairqi Steel Mills Limited and

Director of TIEPCO, both are the subsidiaries of Al Tuwairqi Holding. His down-to-earth vibrant

personality and a firm belief on value system, make him stand firmly against every challenge, both

in his personal and professional life.

Mission

We endeavor to be a respected world-class organization and the leader in Pakistan’s steel

industry by:




Fostering teamwork

Delivering premium products & services

Nurturing talent

Developing solutions based on cutting-edge

technologies

Respecting the environment

Caring for our community

Demonstrating high ethical standards.

Vision

To transform into prosperity, the benefits in Hadeed.

Values Honesty

Integrity

Team Work

Corporate Values




Management Principles

We are committed to employ fair and transparent business management practices, based on

the following principles:

To maintain our identity as a trusted and responsible corporate citizen in the society.

To keep on challenging ourselves in order to provide world-class products to our

customers.

To keep on changing ourselves, so that we can step into the future and achieve more

development.

To create a group, equipped with vitality and technical expertise, by developing and

empowering our people.

TSML Products

Direct Reduced Iron

Hot Briquetted Iron

Billets

Slabs




TSML Tomorrow

In a very short span of time, we have achieved so much, but we envision a more enhanced future.

We are committed to expand our business, continue to look for challenging opportunities, and take

the steel manufacturing industry to newer heights in a vibrant, yet socially and environmentally

responsible manner.

We aim at achieving top standards in all areas of our business. We strongly believe that we can

ensure a prosperous future for our customers, employees and other stakeholders by keeping our

focus on quality, safety, customer services and human resource development.

PAKISTAN STEEL INDUSTRY OVERVIEW :

A rapid industrialization worldwide and increasing standard of living all over the world has been

driving the demand for steel. Though lately, we have seen hick-ups because of the financial

crunch worldwide, this certainly is going to be a short-term phenomena and we still see a

sustained growth in steel consumption in the years to come. We all have witnessed that in every

part of the world, transport networks are being expanded to meet the requirement for growth in

urban and semi urban areas. The availability and reliability of modern communication system have

also accelerated the pace of growth. As urban economies are becoming more and more

sophisticated, around 5billion people are expected to be urban dwellers by 2030, which would be

almost 60% of the total world population. This, evidently, will place a huge pressure on the

existing infrastructure and create a tremendous demand for energy, housing, better transport

system, communication networks, sanitation and health care, etc.




According to the statistics for 2011, the world crude steel production stands at 127 Thousands

Metric Tons around wherein Pakistan’s share is only 0.18 percent. This speaks volumes of a huge

potential of investment and growth opportunity in the steel sector of Pakistan.

Demand/Supply Projections

The annual demand for steel in Pakistan stands at approximately 8.4 million tons, while the

current steel production is about 4.9 million tons per annum. Hence, TSML will be playing a pivotal

role in bridging the gap between the demand and supply of steel in Pakistan.




Per Capita Steel Consumption

The per capita consumption of steel in United States is around 394 Kg and for an emerging

country like China, it is 338 Kg. The average per capita consumption of the entire world stands at




around 175 Kg. In comparison, Pakistan has a per capita consumption of steel of only around 38

Kg. If we consider a very modest increase in per capita steel consumption (say to 100 Kg) in the

next 10 years, the steel requirement would be 20 million tons per annum for a population of

around 200 million by the year 2020.

PRODUCTION OF TUWAIRQI STEEL MILL LIMITED :

A MIDREX Direct Reduction Plant is composed of two main facilities: the Shaft Furnace, where

iron ore is reduced, and the Reformer, which generates the reforming gas to be charged into the




Shaft Furnace. The MIDREX® DR Process is able to use both lumps and pellets as the raw

material and recycles the used gas. Therefore, the process has both low energy consumption and

low environmental impact, making it an environment-friendly process. The direct reduction of the

oxide is carried out on a continuous basis. The iron oxide, fed to the top of the shaft furnace, flows

downward under gravity and is discharged from the bottom in the form of direct reduced iron. The

shaft furnace has two main gas circuits. In the upper circuit, iron oxide is preheated and reduced

by counter flowing reducing gas, consisting of predominantly hydrogen and carbon monoxide. The

lower circuit introduces a mixture of reducing gas and natural gas for the purpose of carburizing

the direct reduced iron. The reducing gas is generated in the reformer by catalytically reforming a

mixture of fresh natural gas and recycled top gas from the shaft furnace. The reformer is a

refractory lined furnace containing alloy tubes filled with a nickel-based catalyst. The feed gas

mixture flows upward through the catalyst bed where it is heated and reformed. The reducing gas

leaves the reformer at near equilibrium conditions, containing 90 to 92 per cent hydrogen and

carbon monoxide. The gas is then directly conveyed to the shaft furnace. The thermal efficiency of

the reformer is greatly enhanced by the heat recuperate. This unit consists of two shell and tube

type heat exchangers in the flue gas duct coming from the reformer. The heat exchangers recover

the sensible heat from the reformer flue gas to preheat combustion air (used in the reformer

burners) to 640 °C and to preheat the process gas (mixture of top gas and natural gas fed to the

reformer tubes) to 540 °C.

The product from module is discharged as COLD DRI and is sent to product silos for safe keeping

and supply to melt shop for melting.




Direct Reduced Iron

Direct-reduced iron (DRI), also called sponge iron, is produced from direct reduction of iron ore

(in the form of lumps, pellets or fines) by a reducing gas produced from natural gas or coal. The

reducing gas is a mixture majority of hydrogen (H2) and carbon monoxide (CO) which acts as

reducing agent. This process of directly reducing the iron ore in solid form by reducing gases is

called direct reduction.

The conventional route for making steel consists of sintering or pelletization plants, coke ovens,

blast furnaces, and basic oxygen furnaces. Such plants require high capital expenses and raw

materials of stringent specifications. Coking coal is needed to make a coke strong enough to

support the burden in the blast furnace. Integrated steel plants of less than one million tons annual

capacity are generally not economically viable. The coke ovens and sintering plants in an

integrated steel plant are polluting and expensive units. India is the largest sponge iron producer

in the world since 2002.


http://en.wikipedia.org/wiki/Coke_(fuel)

http://en.wikipedia.org/wiki/Coking_coal

http://en.wikipedia.org/wiki/Capital_expenses

http://en.wikipedia.org/wiki/Basic_oxygen_furnace

http://en.wikipedia.org/wiki/Blast_furnaces

http://en.wikipedia.org/wiki/Coke_ovens

http://en.wikipedia.org/wiki/Pelletization

http://en.wikipedia.org/wiki/Sintering

http://en.wikipedia.org/wiki/Steel

http://en.wikipedia.org/wiki/Carbon_monoxide

http://en.wikipedia.org/wiki/Hydrogen

http://en.wikipedia.org/wiki/Natural_gas

http://en.wikipedia.org/wiki/Iron_ore

http://en.wikipedia.org/wiki/Reduction_(chemistry)



Direct Reduced Iron




Process Flow Chart for DRI




Product Specifications

MIDREX® Plants produce a high quality, low residual product that dilutes undesirable elements

contained in other charge materials. High metallic iron content, adjustable carbon levels, and

consistent chemical and physical characteristics provide steelmakers broad flexibility in selecting

their furnace charges as well as the ability to produce higher quality steels than possible with

scrap alone.

There are three possible product forms, depending on the application: cold DRI, hot DRI (HDRI),

and hot briquetted iron (HBI). Cold DRI is generally stored for later use in a nearby EAF. HDRI is

discharged hot from the shaft furnace and transported to an EAF for melting. HBI is a briquetted

product that is ideal for shipping to distant consumers.

TSML‘s properly passivity DRI pellets shall be offered for sale in domestic / international market in

the fourth quarter 2009. The selling shall be done either through world renowned steel traders or

direct to industrial users as well. Depending upon customer requirements, the passivity DRI shall

be packed in heavy duty 2 ton polypropylene (PP) sealed bags. Packing in 50-70 Kg polyvinyl

sealed bags is also being considered. The shipment of sealed bags will be in compliance with

Maritime regulations.




Specifications of DRI

DRI PelletUnit

Expected Specification Minimum Specification

Fe. Total % 92 91

Fe. Metallic % 86 84.5




Metallization % 93 92

Carbon % 2.5 1.5

Sulfur % 0.003 0.0005 (Max)

Phosphorous % 0.035 0.04 (Max)

Gangue % 4.5l 5 (Max)

Size mm 4 - 20 4 - 20

-5 mm % 3 3

Bulk Densityt/

m31.6- 1.9 1.6- 1.9

Midrex Technology




Project Status




In the 1st phase, a DRI plant of 1.28 MTPY capacities is targeted for completion in the 3rd quarter

of 2010. Phase-II of the project, which consists of an Electric Arc Furnace and Continuous Caster

is targeted for completion in 2011. A Pelletization Plant of 2.4 million tons capacity has also been

envisaged in the 3rd phase of the project.

The Government of Pakistan has granted the status of Export Processing Zone (EPZ) to the

project, along with the option to export 100 percent of its production to Pakistan, which ensures a

readily available market for TSML products, apart from ATH plants and neighboring Gulf

countries.

Al Tuwairqi is equally focused on backward integration to the extent of mining and exploring all

possible avenues to get iron ore locally from Pakistan. The target ultimately is that steel of

international quality and standard be produced in Pakistan with a total reliance on local raw

material.

PROCUREMENT PROCEDURES AT TSML:




Introduction

Procurement Division consists of 4 Departments namely Imports, Commercial/Contracts, Local

Purchase and Stores. Organogram is attached at Annexure 1.

Procurement Procedure in the form of Flow Chart is attached as Annexure 2 for Imports and

Annexure 3 for Local Purchase. The Procurement Procedure for Import and Local Purchase is

generally same except for some differences which are specific to Import or to local purchase. The

procedure given below is common for both types of purchases. Differences are mentioned

wherever necessary.

The procurement procedure starts with receipt of MPR from User Department. Sometimes, Item

code Generation is also required before the issuance of MPR. Therefore, we start the procedure

with the Issuance of Item code:

A. Item Code Generation: This process is handled by the Material Management Cell (MMC) of

the Procurement Department. Here are the activities involved in it:

1. New Item Code Generation Request Form (Form 01) is filled in by the User Department

and singed by User and QC. This form contains category and description of new item

whose codes need to be generated.

2. The form is checked by Procurement Department for its accuracy and completeness.

3. If necessary, User Department is contacted for required clarification and/or discussions.

4. If the item already exists, its code is communicated to the User Department.




5. If the item is completely new, its code is generated and filled in the same form at the space

provided for this purpose.

6. New Item code Generation is normally completed in 1-2 working days time. Sometimes,

depending upon the number of items, more time may be required to complete the activity of

code generation.

B. MPR Receipt and Processing: For items where system code is already available, the MPR is

directly issued by the User Department. Here are the steps involved in MPR Processing by

Procurement Department:

1. Received MPR is checked in terms of its completeness. Procurement Department has

revised the MPR format to include some new information in the previous MPR.

2. If some data is missing in the MPR, it is not accepted by Procurement and returned to the

issuing department for necessary action.

3. The corrected MPR, when received from User Department, is once again checked and

received in the Procurement Department.

4. After receiving the MPR, it is marked by HOD/Manager to the respective Executive for

inclusion in the list of MPR which are under execution at various stages and for subsequent

processing.

5. Request for Quotation (RFQs) are prepared for various prospective suppliers. Sometimes,

a list of prospective suppliers is also prepared by dealing Executive in consultation with

respective Manager and it is signed by both for record purpose.




6. Follow up is constantly made via phone calls and emails for submission of Quotation

against our RFQs.

7. Quotations received by various Suppliers are sent to User Department for technical

evaluations. During technical evaluations, some correspondence also takes place between

User Department and the suppliers.

8. Procurement Department and user Department work together to get the right quotation for

technical evaluation.

9. After the technical evaluation is complete, User Department informs Procurement

Department about the technical acceptability of the quotations. This information may be in

the form of a letter or email or a Note.

10. If the provided quotations are not in line with the requirements of the User Department, the

Procurement Department floats fresh RFQs to other Suppliers for new quotations and the

process of technical evaluation starts again.

11.After finalization of the technical evaluation, Procurement Department starts commercial

negotiations with technically compliant suppliers.

12.Commercial negotiations covers topics like price, delivery terms, delivery period, payment

mode, payment terms, Country of Origin issues, Warranty issues and other commercial

topics.




13.After successful commercial negotiations, Order is finalized in favor of supplier who is

technically compliant and commercially most competitive.

14.A Comparative Statement (CS) is prepared by Procurement Department which gives

details of Quotations, important commercial terms and the recommendation about PO

placement on a particular supplier. In case of proprietary items, no CS is prepared and the

PO is finalized on the basis of single quotation.

15.The CS is initialed by the representatives of Procurement Department and User

Department.

16.PO is also prepared based on CS and initialed by the representatives of Procurement

Department and User Department. PO is sent to finance department for cost booking.

17.The CS along with the PO is then sent to the Pre-Audit department for Audit purposes. If

the Audit Department has some observations, the file is sent back to the Procurement

Department for removal of observations and sending the file back again to the Audit

Department.

18. If the case is clean, the Audit department validates the case and sends the file back to the

Procurement Department for further processing.

19.Procurement department puts the file forward for the signatures of the Signing Authority as

per signature mandate.




20.POs up to PKR 500,000/- or equivalent in other currencies, is signed by the Head of

Procurement or other persons (senior Manager or Department In-charge) as and when

authorized by the Director Projects.

21.POs up to US$ 200,000/- are signed by the Director Projects.

22.POs over and above US$ 200,000/- are signed by the Director Projects on behalf of Vice

Chairman of Altuwairqi Holdings. Post approval is sought from the Vice Chairman later on.

Sample Material Requisition Slip




C. Execution of Purchase Orders: After the PO is signed, it is processed further as follows:

1. The PO is sent to the Supplier or his Agent through Courier, Email Attachment or is

personally collected by the suppliers’ representatives.

2. In most cases of foreign suppliers, Original POs are not required to be sent to the supplier.

Email attachments are sufficient.

3. Suppliers’ acknowledgement is sought via email or a signed copy of the last page of the

Terms and Conditions where proper space is provided for suppliers’ signatures.

4. In some cases, formal Order Acknowledgment is not received but PO execution starts

which is proved by some other indications like processing of advance payment, drawing

submission or the likes.

5. After having received PO acknowledgement in any form, Procurement Department

processes advance payment if agreed in the Payment Terms. Advance payment over and

above Rs. 200,000/- is paid only against Bank or Insurance Guarantee. Advance payments

of lesser amount are released without Guarantee. Guarantees are accepted by renowned

Banks and Insurance companies only.

6. In case of Bank/Insurance Guarantees, Procurement Department coordinates with Finance

Department to arrange Genuineness Certificates from the Bank or Insurance Company

who has issued the Guarantee.




7. After Genuineness confirmation, suppliers Invoice along with copies of PO and Guarantee

is submitted to Internal Audit Department for validation.

8. Internal Audit Department validates the case as per procedure mentioned in B-17 & 18

above and sends the case to Finance Department for release of advance payment.

9. Original Guarantees are kept by the Head of Legal Department while copies are retained

by Procurement Department.

10. After advance payment, the PO execution starts in full swing and a lot of activities start

simultaneously which includes drawing submission, technical reviews, discussions on

delivery schedule, any commercial or technical clarifications, any changes in the scope of

PO, LC related issues, etc. Drawing submission is not mostly related to local

purchase.




Sample of Purchase Order (Oracle Generated)




Terms and Conditions







D. LC Opening/Handling and Material Receipt: This section describes how LCs are opened

and handled. Information given hereunder do not relate to Local Purchase.

1. In POs where payment Mode is LC, Procurement Department asks the supplier to issue a

Proforma Invoice (PFI) which gives details items to be purchased, pricing, delivery terms,

payment terms etc.

2. The PFI is checked by Procurement Department and, if found complete, forwarded to

Commercial Department who prepares and forwards the case for LC opening to the Bank.

3. Commercial Department arranges a draft LC which is checked by Procurement Department

and forwarded to the supplier for checking and approval. Any changes and/or modifications

suggested by the supplier and agreed by Procurement/User Department is incorporated in

the draft and the Bank is accordingly advised by Commercial Department to issue the LC.

4. Once LC is established, the supplier is informed and a copy is sent to him via email. The

supplier is also advised to collect the original from his bank.

5. When the time of shipment comes close, LC particulars are once again checked specially

the validity dates. If the LC is no more valid for shipment or negotiations, it is amended in

consultation with Supplier.

6. If, during the execution of Order, some changes take place, like LC value or equipment

specifications, necessary amendments are made in the LC in consultation with the Supplier

and Commercial/User Department.




7. For CFR deliveries, supplier is responsible to arrange shipment and pay freight up to

Karachi Port.

8. For Ex-Works or FOB deliveries, shipment arrangements are made by Commercial

Department in coordination with Procurement Department.

9. Once the shipment is effected, Procurement Department is responsible to arrange clean

and correct shipping documents from the supplier, through his bank. The supplier sends

the documents, through his bankers, to our Bank who has opened the LC ( LC opening

Bank).

10.The LC opening Bank informs our Commercial Department along with copy of the received

shipping documents. Commercial Department sends copies of shipping documents to

Procurement Department for checking and submission to Internal Audit Department for

payment validation, if no discrepancies found in the documents.

11.Finance Department issues payment authorization to the Bank who credits supplier’s

accounts and debits our Account. Our Bank then endorses the Original Shipping

Documents and hands over them to Commercial Department who uses these Documents

for Custom Clearance.

12. If discrepancies are observed in the shipping documents, they are accepted by

Procurement Department (if minor in nature) and the documents are then sent to Internal

Audit for payment validation and onward submission to Finance department.




13. If discrepancy observed in the shipping documents are major, our Bank is advised to send

back the documents to the Supplier’s Bank for correction and re-submission.

14.After Custom Clearance by Commercial Department, the consignment is moved to the job

site with prior intimation to Procurement Department, User Department and Stores.

15.After the arrival of consignment at site, User Department physically checks the condition of

consignment for any damages etc.

16. If damage is found, store department informs Procurement Department who arranges

insurance survey through Insurance Company and, if damage is material, applies for

insurance claim.




Sample of Letter Of Credit




E. Issuance of GI/QC and GRN: After the arrival of consignment at site, following activities take

place: (these activities are common for Import and Local Purchase except as explained

below)

1. When the consignment enters the job site, Gate Inward (GI) is prepared by Stores

Department which serves as proof of entry into the Job Site.

2. User Department then coordinates with QC department for the checking of quality of

Equipment/Material received. If the quality is found satisfactory, QC Report is issued which

is signed by representatives of User Department and Quality Department.

3. If the material is defective, Rejection Note is prepared and the Supplier is asked to take the

material/equipment back. In case of partial rejection, the accepted material is kept and the

rejected material is returned.

4. Based on QC Report, Store Department prepares Goods Receipt Note (GRN) and sends a

copy to Procurement Department for record.

5. In case of LC, the GRN is sent to Internal Audit and Finance Department, along with other

related documents, for record purpose and closing of case. This also closes the case in

Procurement Department.

6. In case of local purchase, where payment is to be made after delivery, GRN is sent the

Internal Audit and Finance Department, along with other related documents, for release of

payment.




7. In case of local purchase where payment has already been made in advance, GRN is used

as per point E-5 above, for adjustment of advance.

Purchase Process at Project Department




Organogram




Process Flowchart-Imports




Process Flowchart-Local Purchase







INVENTORY PROCEDURES AT TSML:

Inventory management is one of the most important managerial activities. TSML shall have its

own mines and queries in Pakistan. The raw material inventory includes material from its own

sources as well as purchased from other countries such as Bahrain and Brazil such as Oxide

Pellets. Raw material inventory therefore lies both at work and its place of extraction. These are

transported to works both by road and rail.

To maintain the minimum required inventory such as DRI and Billets is not an easy task. There

are many reasons for each different organization as to what the quantity be maintained. TSML raw

material consists of mainly Iron Ore of 63.5% Fe, Oxide Pellets and Direct Reduced Iron of 66%

Fe. And in the semi finished goods TSML shall have Billets and Slabs which are widely used by

Re-Rolling mills mostly located in Lahore. TSML shall have its own transportation system which

helps in carrying the material from Interior Sindh and Balochistan for its Steel Mill.

Each type of production department maintains separate inventory level. TSML shall maintain

different types of inventory i.e. Raw Material, Work in Process and Semi Finished goods.

For valuation of inventory TSML shall use FIFO method and for ordering, they use EOQ method.

FIFO is an acronym for First In, First out, an abstraction in ways of organizing and manipulation of

data relative to time and prioritization. This expression describes the principle of a queue

processing technique or servicing conflicting demands by ordering process by first-come, first-

served (FCFS) behavior: what comes in first is handled first, what comes in next waits until the

first is finished, etc.

Economic order quantity is the level of inventory that minimizes total inventory holding costs and

ordering costs. It is one of the oldest classical production scheduling models. The framework used

to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. There will


http://en.wikipedia.org/wiki/First-come,_first-served

http://en.wikipedia.org/wiki/First-come,_first-served

http://en.wikipedia.org/wiki/Queue_(data_structure)

http://en.wikipedia.org/wiki/Acronym



not be any loss by either way. Any change in one or more of them will change the EOQ of that

item.

To find out EOQ; the formula is =

Where; Q* is independent of P; it is a function of only S, D, H.

Policies shall be maintained by TSML for Inventories

Raw material and semi finished products produced and purchased by TSML are carried at

lower of cost.

Work in Progress is carried at lower of cost and net realizable value.

Iron ore and other raw material shall be purchased by the company are carried at lower of cost

and net realizable value.

Store and spare parts are carried at cost.

Cost of inventories is generally ascertained on the ‘weighted average’ basis .Work in progress

and semi finished products are valued on full absorption cost basis.

TSML has its own Electric Plant, Water reservoir and gas preserver from Sui Southern Gas for

regular production.




CRITICAL ANALYSIS:

Procurement department at TSML is responsible for the purchase of different goods and

acquisition of services through tenders. Process at procurement department is very simple.

When Material Purchase Requisition Slip (MPRS) comes to procurement department then they

issues Request for Quotation (RFQ) to the various suppliers for the quotations. The technical

committee approves the quotation by consulting with the Incharge DRI plant.

Some of the most important elements need to be revise are as follows:

Annual plans containing basic information on upcoming procurements (over $2M), to be

submitted by operating departments to a Procurement Strategy Committee not by

Technical Cell division;

Review of plans to identify those procurements, generally over $20M, for which

consideration by a procurement review committee (PRC) is needed not by consultant

department because they are not so much aware of the import process and finance as well.

Early notification to the Procurement Review Secretariat of procurements not in the plan,

with individual review at the request of any committee member in this way transparency

exist;

Statement of expected benefits and monitoring plan to be prepared by the member

requesting PRC review so that process can be smoothen;

Analysis of costs (including downstream costs) and risks where the operating department

considers them significant (a detailed analysis of costs and benefits is not required where

all parties agree that national objectives can be achieved with no material increase in cost

or risk to the operating department);




Treasury Board approval of procurement strategies prior to release of the request for

proposals where costs or risks are at issue, or where it is proposed to assign evaluation

points to national objectives benefits; and

Monitoring and reporting through compliance management department and strictly checked

by procurement committee.

TSML shall give Tender announcements in the newspaper which gives competition.

At stores TSML shall have RFID systems so that inventory can be located easily with their

quantity.

In order to supply raw material from jetty TSML shall have Conveyor Belts so the inventory

of Iron Ore and Pellets can be maintained and regular supply in case of strike.

Implementation of ABC Analysis shall be in TSML so that material inventory can be

controlled in more organized manner.







PROCUREMENT REVIEW PROCESS




RECOMMENDATIONS:

As TSML project is underway and the procurement procedures have been made in order to run

the system in smooth manner but there are some recommendations that TSML shall implement in

their procurement and inventory which are as follows:

The ABC analysis is a business term used to define an inventory categorization technique

often used in materials management. It is also known as Selective Inventory Control. It

stands for Always Better Control. Policies based on ABC analysis: A ITEMS: very tight

control and accurate records B ITEMS: LESS TIGHTLY CONTROLLED and good records

C ITEMS: simplest controls possible and minimal records

The ABC analysis provides a mechanism for identifying items that will have a significant

impact on overall inventory cost, while also providing a mechanism for identifying different

categories of stock that will require different management and controls.

The ABC analysis suggests that inventories of an organization are not of equal value. Thus,

the inventory is grouped into three categories (A, B, and C) in order of their estimated

importance.

'A' items are very important for an organization. Because of the high value of these ‘A’

items, frequent value analysis is required. In addition to that, an organization needs to

choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity.

'B' items are important, but of course less important, than ‘A’ items and more important

than ‘C’ items. Therefore ‘B’ items are intergroup items.

'C' items are marginally important.


http://en.wikipedia.org/wiki/Materials_management

http://en.wikipedia.org/wiki/Inventory



ABC analysis categories

There are no fixed thresholds for each class, different proportion can be applied based on

objective and criteria. ABC Analysis is similar to the Pareto principle in that the 'A' items will

typically account for a large proportion of the overall value but a small percentage of number of

items. Example of ABC class are:

‘A’ items – 20% of the items accounts for 70% of the annual consumption value of the

items.

‘B’ items - 30% of the items accounts for 25% of the annual consumption value of the

items.

‘C’ items - 50% of the items accounts for 5% of the annual consumption value of the items.

Another recommended breakdown of ABC classes:

1. "A" approximately 10% of items or 66.6% of value

2. "B" approximately 20% of items or 23.3% of value

3. "C" approximately 70% of items or 10.1% of value

Implementation of Mayer Scale

Mayer Scale Manager is an integrated scale receiving application that links directly with your scale

hardware to reduce the keying of weights and the possibility for scale related fraud.

The Scale Manager application is optimized for high traffic yards dealing with retail or cash trade

or industrial accounts and utilizes keyboard based shortcuts to enable operators to quickly weigh

vehicles in and out of the yards.


http://en.wikipedia.org/wiki/Pareto_principle



With additional features such as automatic price and freight allocation, cheque printing, multiple

weighing functionality and the option of having multiple weigh stations, Scale Manager can

provide increased productivity to the scale weighing operation.

All in all, Mayer Scale Manager is a comprehensive point-of-sale and point-of-purchase

application for quick and east scale receiving and shipping. Read on:

Built in resilience through off-line data store. Keeps scale running and collecting valuable

information even while main systems are off-line.

Handles sales and purchase transactions

Single or multi-stage process.

Multiple weighing.

On site or "in queue" vehicle listing ability.

Unlimited commodities per transaction.

Trackable, independent vendor descriptions for each commodity line.

Allows both account and non-account transactions for large vendors and "one-off" peddler

trade.

Manual or automatic price entry, contract or no-contract.

Allows weight or amount deductions per commodity line.

Material Movements and Sorting.

Baling.

Easy to use windows interface.

Single key searching for vendors, customers, freight carriers, commodities and contracts.




Option of linking directly to scale for direct interface of scale weighing, no manual weights

entered.

Multi-line or grades per transaction.

Eliminates mistakes and possible fraud.

Live, real-time or delayed information.

Full event log per transaction, identifies changes and strange events.

Fast cutting of checks for materials, freight and other services right at the scale.

Creates full documentation including purchase and sale tickets and inspection documents.

All produced documents i.e. tickets, bills of lading etc. customizable by the customer.

RAW MATERIAL TO BE EXTRACTED:




CONCLUSION:




Tuwairqi steel mill comprises of different departments at SITE and Head office which are playing

their vital role for the operation of DRI plant. Departments of TSML at site are significantly

interconnected with each others in stipulations of vocation and comprehension. TSML DRI plant

has numeral of abundant advantages as it is environmentally friendly and operates with the

natural gas. TSML is using an ITMK-2 (Midrex) process which is initial of its category in Pakistan.

Reduction furnace height of DRI plant is 107 meters. DRI plant is equipped with 6.5 meter

diameter Midrex shaft furnace. The prospect of DRI in Pakistan is flamboyant as the demand and

supply gap of steel exists. With the implementation of ABC analysis at TSML in Procurement and

inventory department company can easily know which raw material they have to acquired.

As TSML have already implemented FIFO and EOQ process which shows that there procedures

are well defined but more work has to be done for smooth process. The procurement procedure

starts with receipt of MPR from User Department. Sometimes, Item code Generation is also

required before the issuance of MPR.

REFERENCES:




www.tuwairqi.com.pk

Tuwairqi Procurement Department.

Tuwairqi Inventory Department.

www.google.com

www.yahoo.com

Wekipedia.com


Procurement and Inventory Mgmt

Documents

inventory management

inventory management

inventory practices

inventory procedures

production of tuwairqi

teacher of procurement

procurement procedures

reportof procurement