“To find the Impact of IMPETUS Rate Contracts on

Maintenance & Procurement systems and to improve the

Operational Efficiency”

“PROJECT IMPETUS”
OIL & NATURAL GAS CORPORATION LIMITED

SUMMER INTERNSHIP PROJECT

Submitted by:

V.S.S.KARTHIK.N

PRN: 09020741105

In partial fulfillment of the requirements of MBA program of

Symbiosis Institute of Operations Management.

 Acknowledgement
I sincerely thank OIL & NATURAL GAS CORPORATION LIMITED for giving me
this opportunity to undertake my summer project with them. It has been a wonderful
experience to work in this esteemed organization and with the people of amazing
caliber.

I would like to extend my special thanks to Mr. ASHOK BABU, CM (MM), ONGC
who was my mentor for this project, for his valuable initial briefing and constant
guidance through out the project, without his support the successful completion of this
project would not have been possible.

I am grateful to Mr.K.MANOHAR, F & AO. His guidance at every stage

of the project provided new aspects to think of and incorporate possibilities and
work from there on.

I appreciate and thank the staff of the Materials Management Department and Internal
Audit Department for cooperating through out the project.

Last but not the least; I would like to extend my gratitude to Mr.ABHAY LIDBE
for his guidance and encouragement towards the successful completion of this
project.

TABLE OF CONTENTS

EXECUTIVE SUMMARY 4
INTRODUCTION
Project IMPETUS 5
Rate contracts 6
Purchase overview 7

DEFINITION & SCOPE OF THE PROJECT 10

COMPANY BACKGROUND
Financial results 11
Production and Sales 12
Organizational structure 13

MAJOR STRATEGIC ASPECTS 16

MAJOR FUNCTIONAL ASPECTS 17

CONCEPTUAL REVIEW
Procurement process 18
Guidelines for entering into RC’s 20

NEED FOR THE PROJECT 21

ANALYSIS & FINDINGS

Identification of problems 21
Selection of problem 31
Defining the problem 34
Identification of causes 35
Selection of the root causes 41
Findings 42

CONCLUSION & RECOMMENDATIONS 43

FINAL VALUE ADDITION 45

NEXT STEPS 46

ANNEXURE 1 list of materials purchased under RC’s 47

ANNEXURE 2 list of materials selected for final sample 57
BIBLIOGRAPHY 59
GLOSSARY 60

TABLE OF ILLUSTRATIONS

S. No NAME PAGE NO
1 Procurement process 7
2 Sub steps involved in the tendering process 8

3 Production & sales figures 12

4 Operational highlights of FY 09 14

5 Financial highlights of FY 09 15

6 Fow chart of procurement 18

7 Flowcharts for tender 19

8 Comparisons of purchases for with and without RC 19

EXECUTIVE SUMMARY
Rate Contracts have been initiated by IMPETUS GROUP in ONGC for Supply of
Spares, Services and Overhauls. Executive Purchase Committee deliberated the
proposals of Impetus and observed that, contrary to the benefits envisaged there has
been an increase in the inventory of certain items and desired that a special study may
be carried out on all the Impetus Rate Contracts.

In the course of this project, I was required to examine and review the Stock Levels
of Materials vis-a-vis consumption where Rate Contracts were entered and to find
its impact on inventory, lead time and price. It required an in depth analysis of all the
purchases which were entered under rate contracts from April 1st 2007 to March 31st
2010.
From the study which I conducted, I found that there is a positive impact on the price
of the material and the lead time where Rate Contracts have been entered by Impetus
Group; there is a substantial decrease in the price and the lead time except in a few
cases where there are delays in delivery of the Material. However there is no decrease
in the stock levels of Material where Rate Contracts were entered, instead in many
cases there is a considerable increase in the Stock Levels without any increase in the
consumption of the Material.
Based on the study work performed it was found that
1. Purchase Orders are being placed even though sufficient quantity of
Material was lying in the Stores. The total amount of Stock (as on 31st
March 2010) which was not utilised even once from the time it was
bought is Rs. 88 Lakhs (as per sample study of 70 items out of a total
of 330 Material).
2. There was an increase in the Stock Levels.
3. In many case the Quantities purchased were more than the average
consumption during the Last three Years.
Prioritizing all the defects which were found as the result of study on the basis of
loss incurred due to that defect, the most vital problem is identified as “ procurement
disparate to consumption “. Various causes leading to this problem were analyzed and
the root cause is identified as inadequate input and internal controls of SAP/ERP and
recommendations were given on the basis of strengthening the input and internal
controls of ERP.
it is also recommended to organize regular training programs for employees to raise
the level of user awareness in SAP/ERP.

INTRODUCTION
PROJECT IMPETUS

Project IMPETUS (IMPLEMENTING MAINTENANCE & PROCUREMENT

EFFORTS THROUGH UPGRADED SYSTEMS) was initiated by Oil & Natural
Gas Corporation Ltd. (ONGC) in 1999. The aim of Project IMPETUS is to improve
upon the operational efficiency and assets utilization. Project IMPETUS has been
integrated with Project ICE (INFORMATION CONSOLIDATION FOR
EFFICIENCY) for ensuring an organization wide uniformity for Maintenance and
Procurement for maintenance. CMD of ONGC Shri R S SHARMA is continuously
encouraging new initiatives being undertaken by Project IMPETUS to facilitate world
class maintenance system.

Objectives of IMPETUS Project

• Facilitating
a) Maintenance activities compliance: >95% at the facilities.

b) Equipment availability: > 95% at the facilities.

 c) System availability: > 99% at the facilities.

• Minimizing Inventory.

• Reduction in the Procurement Cycle.

The analysis of documentation work completed under IMPETUS Project has revealed
that the problems encountered by ONGC are:

• Non-availability of spares in time (Procurement cycle is very large)

 Existing procurement cycle is 6 months to 18 months plus

delivery period.
• Non-availability of sufficient working level Maintenance manpower

 Existing gap to some extent is covered by un-experienced

manpower though out sourcing.

As a methodology for bridging spares gap, Long Term Rate Contracts for 3 years
having alliances / relations with major OEMs (original equipment manufacturers)
have been finalized. For items required continuously throughout the year in large
quantities, it is advantageous to have a rate contract. The Implementation and
Procedure of Rate Contract with OEM was approved by EPC (executive purchase
committee) on 19.1.2004. The approved procedure has been incorporated in the
MM Manual.

The following are the suppliers with whom the Rate Contracts are finalized.

• Bharat Pumps and Compressors Ltd.

• CLYDE UNION

• Cummins Diesel Sales and Services (I).

• DMW CORPORTATION.

• DRESSER-RAND (I) PVT LTD.

• Ingersoll Rand.

• KOKUSAI COMMERCE CO. LTD.

• MAN Turbo AG Germany.

• National Oil Well.

• RUBBER REGENERATING & PROCESSING CO.

• Techno strength Pvt Ltd

 Rate Contracts

Rate contracts are mutual agreements between the buyer and the seller to operate a
set of chosen items, during a given period of time, for a fixed price or price variation.
Under this system the rates are fixed and at times even the quantity of the selected
items. As and when the need arises the buyer issues a Purchase order directly on the
basis of the rate chart available on the supplier who in turn supplies the items.
Application of rate contract helps organizations cut down the internal administrative
lead time as individual workcentres need not go through the central purchasing
departments and can place orders directly with the suppliers. It also helps in building
Buyer-supplier relationship as the contract period is usually three years and then
there is always a chance of the same players doing the next contract. The system
works well normally in a situation where the selected items are routinely consumed.
Items for which rate contract should be concluded will be specified
and this list will be reviewed and additions made every year depending upon the past
consumption or on anticipated consumption. Rate contracts will not be entered into
in the case of items for which the market shows downward trend.

Purchase overview

Fig 1: procurement process

By fixing the rate contracts the MM (materials management) Department is reducing
the procurement cycle by limiting the steps from “FORMATION OF TENDER
COMMITTEE” to “ISSUE OF LOI” only for the first time of procuring a particular
item. The various sub steps involved in procurement process that can be eliminated
by introducing rate contracts are from “FORMATION OF TENDER COMMITTEE”
to “RELEASING OF EMD OF UNSUCESSFUL BIDDERS” in the below flowchart
,the duration of which is more than 3 months.

Fig 2: sub steps involved in the tendering process

Besides reducing the procurement cycle and minimizing the transactions
involved in purchasing, there are a quite many benefits in fixing rate contracts
for both buyer ( ONGC) as well as suppliers with whom rate contract is
finalized.

Benefits with the Rate Contract Scheme

To ONGC
 Facility of bulk rate at lowest competitive price.

 Saves time and effort in tedious and frequent tendering at multiple user
locations.

 Enables buying as and when required.

 Just in time availability of supplies reduces inventory carrying cost.

 Availability of quality goods with full quality assurance back up.

To Suppliers

 Access to large volume of purchase without going through tendering and

follow up at multiple user locations – saving in administrative and marketing
efforts and overheads.

 Rate contract lends respectability and image enhancement

DEFINITION OF THE PROJECT

Executive Purchase Committee of ONGC deliberated the proposals of Impetus and
observed that, contrary to the benefits envisaged there has been an
increase in the inventory of certain items. EPC desired for a special study
to be carried out on all the Impetus Rate Contracts in all respects, including the
following:

• Impact of Rate Contracts on:

 1. Inventory of Spares in absolute terms and as a ratio to the
consumption level.

2. System and Equipment availability.

• Impact of Impetus Rate Contracts on Cost of Spares.

• Impact of Rate contracts on lead time.

My role in this project was to study the impact of IMPETUS Rate contracts on the
inventory of spares with respect to consumption, lead time of delivery & price of
materials which were entered between April 1st 2007 to March 31st 2010, and to
identify the major loop holes in the process and to recommend the necessary steps to
be taken to improve the operational efficiency.

SCOPE OF THE PROJECT

My scope in this project included

• examine and review the Stock Levels of Materials vis-a-vis consumption

where Rate Contracts were entered.

• Study the impact of rate contracts on inventory of spares, leadtime taken for
delivery & price of the material.

• Analyze the in efficiencies that were found during the study and to find the
major causes leading to the negative impact of rate contracts on inventory,
lead time & price.

• Highlighting and giving recommendations on processes to eliminate the major

causes.

Scope of this project is limited to purchases which are under only Rate contracts
during the last 3 years in K-G basin, which belongs to only RAJHAMUNDRY
ASSET of ONGC.

COMPANY BACKGROUND
Oil and natural gas Corporation limited (ONGC) is the highest profit making public
sector Company in India. The mission of the company is to stimulate, continue and
accelerate exploratory efforts to develop and maximize the contribution of
hydrocarbons to the economy of the country. ONGC was formed in August 1956 as
commission with a Parliamentary Act. Later it has become a statutory body in 1959.
In consonance with Government of India’s liberalization policy, ONGC was
incorporated in June 93 as a Public Limited Company. With effect from February 1,
1994 the undertakings of the erstwhile Oil and Natural Gas Commission and the
reserves were transferred to Oil and Natural Gas Commission and the reserves were
transferred to Oil and Natural Gas Corporation Limited (ONGC).

At present ONGC is a ‘Fortune Global 500 company’ and has been ranked as
Number One E&P (Exploration and Production) Company in the world as per the
Platt’s Top 250 Global Energy Company Ranking 2008. The fiscal 2008-09 can well
be termed as the year of exploration successes for ONGC as it accreted 284.81
Million Metric Tonnes of Oil Equivalent (MTOE) of Initial In-place volume of
hydrocarbons, the highest in last two decades and 56 % more than the previous year
(182.23 MTOE), with 28 discoveries (Oil:17; Gas:11) spread across the Indian
sedimentary basins. The total number of employees in ONGC are 33,035 including
technical and non technical.

Financial Results

Despite volatile oil markets and crude oil prices, ONGC has earned a Net Profit of
Rs.161,263 million (down 3.45% from Rs. 167,016 million in 2007-08).During the
year under review, ONGC registered a gross revenue of Rs. 650,494 million, (up 5.7
% from Rs. 615,426 million in 2007-08), despite sharing under recoveries of Rs.
282,252 million (Rs. 220,009 million in 2007-08), of the Public Sector Oil Marketing
Companies by way of discounts in the price of Crude Oil, Domestic LPG and PDS
Kerosene, on administrative instructions of the Ministry of Petroleum & Natural Gas,
Government of India

Highlights

• Sales Revenue: Rs. 639,682 million

• Profit after Tax (PAT): Rs. 161,263 million
• Contribution to Exchequer: Rs. 280,496 million
(ONGC’s contribution to Central and State Government by way of Cess, Royalty,
duties, taxes and Dividend on Central Government Shareholding).
• Return on Capital Employed 49.9 %
• Debt-Equity Ratio 0.0003:1
• Earning Per Share (Rs.) 75.40
• Book Value per Share (Rs.) 365

Production & Sales

Highlights of production and sales of Crude Oil, Natural Gas and Value-added
Products:
Fig 3: production & sales figures

Information technology
ONGC became the first PSU to launch SAP powered “e-procurement” process. This
process will ensure standardization of the procurement process of ONGC and will
ensure transparency in the tendering process. It will also speed up procurement
process. Along with this, your Company has also institutionalized centralized
electronic payment system for employees and the vendors. The system will reduce
manual interventions thereby reducing delays in payments and improving
transparency to the satisfaction of the stakeholders.
ONGC is also implementing Project SCADA (Supervisory Control and Data
Acquisition) covering entire production and drilling facilities. The first phase of the
project covering six assets has already been commissioned. Once implemented,
production and drilling facilities can be monitored on 24x7 real-time bases.
Organizational structure
Chairman cum Managing Director supported with 6 functional Director Heads of the
company. Each Director is looking after one of the activities like Operations, Finance,
Technical, Drilling, Personnel and Exploration. Directors are responsible for effective
functioning of their segment. The entire company is administratively divided into 6
Regional Business Centers. Executive Director/Regional Director is heading each
region. All the 26 work centers fall under any one of the six regions. Every work
center head directly reports to ED/RD.
Its organizational structure is functional and centralized at top level and it is
decentralized at middle and bottom level. Hence financial, administrative authority
and responsibility has been delegated at every level.

Operational highlights of financial year 2009

Fig 4: operational highlights of FY 09
Financial highlights of financial year 2009
Fig 5: financial highlights of FY 09
MAJOR STRATEGIC ASPECTS
ONGC has been able to maintain production levels and due to intensified exploratory
efforts, it is able to accrete record hydrocarbon reserves. During 2008-09, ONGC
accreted 284.81 MMT of initial in-place volume of hydrocarbons from its domestic
acreages; the highest in last two decades.
 As is global trend, the major domestic fields of your Company have also entered in
the natural decline phase. However, the IOR/ EOR schemes, which ONGC is
systematically implementing since 2001, have successfully been augmenting
production and neutralizing decline from these matured fields. Recovery factor from
fifteen major fields, where fourteen IOR/EOR schemes were implemented with an
investment of more than Rs.140, 000 million, have increased from 27.5% in 2000-01
to 33.1% in 2008-09. ONGC is contemplating of investing additional Rs. 160,000
million on seven more IOR/EOR and re-development projects which are under
implementation. These projects will play crucial role in arresting decline from the
matured fields.
Further, indigenously developed MEOR (Microbial EOR)-the Microbial bacterial
consortiums (S-2 for huff-n-puff mode and PDS-10 for control of wax deposition in
oil wells) have successfully been applied in fields of Ahmedabad, Mehsana and
Assam Assets for improving well productivity of stripper wells. The total oil gain
realized is approximately 43,000 m3. ONGC also helped M/s Oil India Limited (OIL)
in implementing this MEOR job in 8 of their wells.

It has always been the endeavor of ONGC to expeditiously develop discovered fields.
45 discoveries, out of 111 made during FY’03 to FY’09, have already been brought to
stream. Accelerated development and production for the remaining discovered fields
has also been launched.
During the year 2008-09, a new and dedicated business unit Eastern Offshore Asset
has been constituted with an aim to put East Coast discoveries on a fast track
development through an integrated East Coast hub.
Besides focus on exploiting brown fields and fields already discovered, it is also
important to discover new fields. ONGC has been intensifying its exploration efforts
and 28 discoveries in the last fiscal testify its resolve to that effect.
Induction of new advanced equipment as well as up gradation of existing resources
with state-of-the-art equipment to remain competitive in the global E&P business is
mandatory for the company. The process of refurbishing and upgrading the On land
Drilling and Work over rigs is already underway in various phases. ONGC has
inducted and absorbed several state-of-the-art technologies. It is also collaborating
and having alliance with technologically rich and expert companies and academia and
has also empanelled several Domain Experts on its roll.

MAJOR FUNCTIONAL ASPECTS

Work in the Oil & Natural Gas Corporation Ltd. (ONGC) has been organized on the
basis of functional Business Groups with commercial working relationship among
these groups.The Business Groups are:
a) Exploration b) Drilling c) Operations d) Technical
Director concerned of the above Business Groups assume effective charge of all
functional aspects of Materials Management.
The procurement and stocking of materials is decentralized to the respective Business
Groups at Headquarters and Regions. Every Business Group has a structured
Materials Management set up with suitable structure at the Regions and Headquarters.
The Headquarters' Materials Management set up with the concerned Director is
responsible for the following:-

 Procurement and related work including Steering Committee cases, Executive

Purchase Committee cases. However policy matters including liaison with the
Govt. will be done by the Materials set up under Director (T).

 Providing superintendence to the Materials set up at the Regions under the

concerned Business Group with regard to different functions of Materials
Management for

 Bulking of all high value indigenous and critical items to be procured centrally
for taking maximum advantage in price discount. Such exercise would be done
by the Headquarters Materials set up for all Regions under the group.
The above functions are to be discharged by personnel of Materials Management
discipline who will be so allocated to each Business Group both at Headquarters and
at the bases. However, the procurement of all indigenous materials except as
mentioned above is decentralized with their respective Business Group.
Materials procurement powers are to be exercised only by exception by functional
executives other than Materials Management executives by special nomination by the
Competent Authority as a stop gap arrangement till such time Materials personnel are
in position.
The Materials Management Support Groups will function strictly within the policy
guidelines and such administrative norms as may be prescribed by Director
(Technical).
Provisions of Materials Management Manual are duly approved by Executive
Committee/steering Committee and ratified by the ONGC Board. Therefore, any
deviation from the prescribed policy guidelines or norms on Materials Management
will require reference to Director (Technical) through the Director In charge of the
Business Group for approval / ratification of Competent Authority wherever
considered necessary.

CONCEPTUAL REVIEW
PURCHASING PROCESS

Fig 6 : flow chart of procurement

The above flow chart represents the entire purchasing process that undergoes in
ONGC. Materials management department is responsible for the procurement of
items. TENDER PROCESS is the most time consuming stage in the entire
procurement process. \

The steps involved in the tender process are as follows.

Fig 7: flowchart for tender

 As the lead time for procuring items is very high (3 months to 1 year) & considering
the fact of increase in inventory of spares, Rate contracts were introduced as an
initiative under PROJECT IMPETUS.

The number of steps involved in the procurement process is reduced to maximum

limit for the spares which were fixed in Rate contracts. It is a contract for the supply
of store at a specified rate during the period of contract.

The process of procurement in the case of spares which were under the rate contracts
and for materials which were procured normally is shown below.

Fig 8: comparisons of purchases for with and without RC

The various Types of Rate Contracts in ONGC

 Item Rate contract

 Quantity Rate contract

 INDEG Rate contract

 DGS&D Rate contract

 Item rate contract: For this contract, contractors are required to quote rates for
individual items of work on the basis of schedule of quantities furnished by the
client’s department

Quantity rate contract: for this contract, suppliers are bound to supply the items of
specified quantity fixed in the contract.

INDEG rate contract: the contracts fixed with only Indian suppliers

DGS&D Rate contract: The Director General of Supplies and Disposals (DGS & D)
constitutes the central purchasing organization of the Govt. of India. It is responsible
for the procurement and purchase of supplies required by the departments of Defence
Organization, Railways etc. DGS & D concludes Rate Contracts for purchase of
materials, stores, equipment etc. with various Indian and foreign firms.
Guidelines for Entering into Rate/Running Contracts
(a) Normally the duration of a rate contract should be for a specific period. In special
cases shorter or longer period of contract may be entered into. No extension to
validity of the contract is required when deliveries against outstanding supply orders
continue after expiry of the validity period. The contract will remain alive for the
purpose of delivery for all the stores ordered during the validity of the contract until
deliveries are completed.
(b) No new rate contract should be placed with the firms having backlog against
existing contracts and also if the backlog is likely to continue for the major portion of
the new contract period.
(c) Rate contract should be placed only on registered and/or reputed and established
firms, which are capable of supplying the stores as, required.
(d) Quotations for rate contracts should be invited for slab quantities and contracts
concluded, accordingly.
(e) In case where a firm has already a rate contract with any other Government
Department, Central/State Public Undertaking, etc. it should be ensured that the
contract is entered into not less favourable terms and conditions than those agreed to
by it with the other departments, undertakings etc.

NEED FOR THE PROJECT

It is believed by EPC that, though the objectives of the IMPETUS group are achieved
by introducing Rate contracts, there still exits some inefficiency in implementing
them. So, I conducted a study on all the IMPETUS RATE CONTRACTS of K-G
BASIN region i.e RAJAHMUNDRY ASSET of ONGC with the objectives to find the
impact of IMPETUS Rate contract on inventory, lead time and price.

ANALYSIS AND FINDINGS

Identification of problems
Methodology of study

The following procedures were used to achieve the STUDY objectives:

• Collected the list of all the Suppliers and Material for which Rate
Contracts were finalized from the Materials Management Department.
• T Code ME2L was used to download all the Purchase Orders placed
during the Years 2006-07 – 31st March 2010. From this List all the cases
where the Tender Process is 10 were filtered. Tender Process 10 stands for
Rate Contracts.
• There are 330 numbers of Materials which were purchased on Rate
Contracts during the last three years. Out of this a sample of 70 numbers
of Materials was taken for analysis.
• Methodology adopted for selecting the Sample:
♦ Out of 330 Materials, all cases where the Net Price of Material was
more than Rs.50, 000 were selected (18 Nos.).
♦ After this, cases where more than 100 units of Material were
purchased during the last three Years were selected (22 Nos).
♦ Subsequently all Material which were purchased more than 4 times
during the last three Years were taken.( 30 Nos)
• The Price of the Material was taken from the website
www.etenders.ongc.co.in
• T Code MB5B & MC.9 were used to check the consumption pattern of
the Material and stock levels.
• All the cases where no Material was available in the Stores were taken.

Detailed study analysis with observations

I examined the impact of Impetus Rate Contracts on the price of the Material, Lead
time taken for delivery, consumption pattern of the materials, stock out situations, the
impact on Equipment availability and the impact on inventory level after the
implementation of impetus Rate Contracts. Based on the study performed, I found that
there is a decrease in the prices of the Material and lead time, where Rate Contracts
were entered.

Based on the review I observed that there exists some inefficiency in managing the
quantity of Spares that need to be maintained, these need to be eliminated. The
following are the main areas of concern:
• There are a few cases where there is an increase in the lead time for
delivery of Material.
 • In some cases where there was no stock of Spares for more than six
months.
• There are cases where the Material was purchased repeatedly, even
though there was no consumption of that Material. There were no
controls to prevent rising of requisitions where there is a sufficient
quantity of the Material in the Stores.
• In many cases it was observed that there is an increase in the stock of
the Materials even after the Rate Contracts were finalized.

Study results

1. The following are the cases where there was increase in the Lead
time. (Such cases constitute 7 % of the sample cases)

Price Cost @
S Lead Lead fixed in which
l Material PR PO GR time time rate materia
Plant PR No. PO No.
N Code Date Date Date before after contract is
o. RC RC ( INR ) bought
( INR )
19- 30- 15- 3,52,519.8 4,37,12
1 41D1 05- 05- 12- 1 .56
210456485 1090002484 2008 4010039564 2008 2009 365 575
19- 30- 15- 7,00,887 8,76,10
2 41D1 05- 05- 12- .75
210456179 1090002484 2008 4010039564 2008 2009 300 575
03- 14- 24- 1,10,556 -
3 41D1 12- 01- 03-
215308679 1090002036 2007 4010036788 2008 2008 84 112
03- 14- 24- 2,94,254 -
4 41D1 12- 01- 03-
215330888 1090002036 2007 4010036788 2008 2008 96 112
03- 14- 24- 1,03,371.2 1,28,18
5 41D1 12- 01- 03- 1 .300
210618330 1090002036 2007 4010036788 2008 2008 84 112

2. The following are the cases where there was increase in price.

Ven
Sl Rate
Material PR PO GR dor
N PR No. PO No. Qty Amount before Diff
Code Date Date Date Cod
o. PO
e
19- 30- 15-
41D
1 05- 05- 12- 1 3,34,2 -63 1007
1
210456485 1090002484 2008 4010039564 2008 2009 3,97,270 68 ,002 85
2 41D 215308679 1090002036 03- 4010036788 14- 24- 38 2,552 2124 1012
1 12- 01- 03- -428 33
 2007 2008 2008
03- 14- 24-
41D
3 12- 01- 03- 1012
1
215330888 1090002036 2007 4010036788 2008 2008 93 1,613 1543 -70 33

Out of 70 cases scrutinized, in 60 cases no prior purchase was observed in the system.
Therefore only 10 cases were found where there was either increase or decrease in
cost after RC. There is 10% decrease in the Cost of Spares after IMPETUS Rate
Contracts.

3. The following are the cases where there is no stock of Materials in the Stores. The
column Date of Last issue is the date from which there was no stock in the
Warehouse.

Current
Sl Material PR PO GR Date of Vendor
Plant PR No. PO No. Qty
No. Code Date Date Date last issue Code
Stock
19-05- 30-05- 12-08-
41D1 1 -
210456471 1090002484 2008 4010039564 2008 2008 100785
1
12-03- 28-03- 31-07-
1 0 26.09.2009
210456471 1090003572 2009 4010045211 2009 2009 100785

09-02- 13-03- Not

41A1
210002209 1090003399 2009 4010044730 2009 Recd 1 0 101233
2
09-11- 17-12- Not
210002209 1020023312 2009 4010049414 2009 Recd 1 0 101233

15-05- 27-05- 12-09-

41 E1 210019849 1090002487 2008 4010039499 2008 2008 4 20.03.2009 101233
3
28-12- 30-12- Not
0
41 E1 210019849 1020024627 2009 4010049639 2009 Recd 3 101233

28-05- 28-05- 10-09-

4 0
41 E1 215308652 1090002561 2008 4010039513 2008 2008 2 16.12.2008 101233

28-05- 28-05- 10-09-

5 0
41 E1 220012001 1090002561 2008 4010039513 2008 2008 2 16.12.2008 101233
06-01- 12-01- Not
0
41 E1 215308652 1020024516 2010 4010049848 2010 Recd 2 101233

28-05- 28-05- 10-09-

6 0
41 E1 215301843 1090002561 2008 4010039513 2008 2008 2 20.03.2009 101233

28-05- 28-05- 10-09-

7 0
41 E1 340408205 1090002561 2008 4010039513 2008 2008 7 28.10.2009 101233

18-09- 18-09- 15-10-

0
41 E1 220923090 1090003078 2008 4010041448 2008 2008 1 09.06.2009 101233
8
06-01- 12-01- Not
41 E1 220923090 1020024516 2010 4010049848 2010 Recd 2 101233

9 41 E1 210019820 1090002487 15-05- 4010039499 27-05- 12-09- 3 0 13.12.2008 101233

2008 2008 2008
 06-01- 12-01- Not
41 E1 210019820 1020024516 2010 4010049848 2010 Recd 3 101233

28-05- 28-05- 10-09-

0 09.06.2009
41 E1 215308764 1090002561 2008 4010039513 2008 2008 5 101233
10
06-01- 12-01- Not
41 E1 215308764 1020024516 2010 4010049848 2010 Recd 3 101233

 The spares belonging to Engineering Services (41E1) i.e., Workshop are

required only when requisition takes place for overhauling of Cummins
Engines. The order for these Spares is placed 6 months before the
Overhauling. So there is no necessity in keeping the spares in inventory.

 The Spare related with Drilling mentioned at item No.1 (Material

Code210456471 RESET RELIEF VALVE 3") is also repairable type and
all the connected spares are available in Stock. Therefore the equipment is
available even though the stock is nil

 The spare related with asset mentioned at item No. 2 ( Material Code
210002209 )

Supplier base is near to the asset, so that this item can be supplied just in
time.

So it is not desired to keep the item in stock as inventory.

4. The following are the cases where there was no consumption, but still the Material
was purchased. In the first 13 instances there was No consumption at all and in the
next 9 instances only a few units were used.

Current Vendor
Sl Material PO GR Unit Total
Plant PR No. PO No. Qty Usage
No. Code Date Date Cost Cost
Stock Code
30- 15-
41D1 05- 12- 1 0 -
210456485 1090002484 4010039564 2008 2009 3,97,270 100785
1
28- 21-
8,10,6
03- 01- 1 0 2
32
210456485 1090003572 4010045211 2009 2010 4,05,316 100785

30- 15-
41D1 05- 12-
210456160 1090002484 4010039564 2008 2009 5 0 81,069 100785
2
28-
4,13,5
03- Not 5
55
210456160 1090003572 4010045211 2009 Recd 2 0 82,711 100785

3 30- 12-
41D1 05- 08-
210456354 1090002484 4010039564 2008 2008 60 0 2,896 100785
210456354 1090003572 4010045211 28- 21- 60 0 120 2,954 3,54,51 100785
03- 01- 2
 2009 2010

14- 24-
41D1 01- 03-
210004665 1090002036 4010036788 2008 2008 18 11,602 101233
29- 29-
4 01- 05-
210004665 1090002156 4010037106 2008 2008 96 0 36,105 101233
06- 04-
47,08,46
08- 09- 162
7
210004665 1090002843 4010040654 2008 2008 48 0 29,065 101233

22- 05-
11- 02-
41A1 210073433 1090001248 4010028080 2006 2007 2 0 7,102 101233
5
28- 25-
25,05
02- 04- 3
7
41A1 210073433 1090001981 4010037830 2008 2008 1 0 8,352 101233

18- 29-
09- 10-
41 E1 210000016 1090003078 4010041448 2008 2008 2 0 3,990 101233
6
30-
7,98
12- Not 2
0
41 E1 210000016 1020024627 4010049639 2009 Recd 2 0 3,990 101233

29- 29-
18,72
7 01- 05- 6
4
41D1 210017716 1090002155 4010037097 2008 2008 6 0 3,121 101233

29- 24-
5,85
8 01- 03- 2
1
41D1 210017326 1090002155 4010037097 2008 2008 2 0 2,925 101233

29- 29-
36,8
9 01- 05- 14
37
41D1 215301970 1090002155 4010037097 2008 2008 15 0 2,631 101233

29- 28-
14,3
10 01- 03- 5
98
41D1 215307330 1090002155 4010037097 2008 2008 5 0 2,880 101233

29- 31-
2,6
11 01- 03- 10
25
41D1 215308652 1090002155 4010037097 2008 2008 10 0 263 101233

29- 31-
33,4
12 01- 03- 4
09
41D1 210073433 1090002155 4010037097 2008 2008 4 0 8,352 101233

13 22- 18-
41A1 11- 01-
220923409 1090001248 4010028080 2006 2007 1 0 8,409 101233
220923409 1090001981 4010037830 28- 25- 2 8,829 101233
02- 04-
2008 2008
 28- 25-
61,8
02- 04- 7
06
220923409 1090001981 4010037830 2008 2008 3 0 8,829 101233

29- 31-
1,2
14 01- 03- 5
28
41D1 220923090 1090002155 4010037097 2008 2008 6 1 246 101233

22- 31-
2,1
15 11- 01- 9
05
41A1 220923090 1090001248 4010028080 2006 2007 10 1 234 101233

30- 25-
41D1 05- 02- 0
210004988 1090002484 4010039564 2008 2009 90 0 12,192 100785
16
28- 21-
21,27,02
03- 01- 171
6
210004988 1090003572 4010045211 2009 2010 100 19 12,439 100785

28- 13-
17 02- 07- 18 14,301
41D1 210019211 1090003312 4010044425 2009 2009 20 2 795 101233

22- 12-
11- 03-
41A1 215308280 1090001248 4010028080 2006 2007 8 0 5,451 101233
22- 16-
18 11- 03-
41A1 215308280 1090001248 4010028080 2006 2007 8 0 5,451 101233
28- 25-
1,05,6
02- 04- 17
12
41A1 215308280 1090001981 4010037830 2008 2008 2 1 6,212 101233

14- 24-
01- 03-
41D1 210030855 1090002036 4010036788 2008 2008 1 0 869 101233
29- 27-
19 01- 03-
41D1 210030855 1090002155 4010037097 2008 2008 8 869 101233
29- 31-
13,0
01- 03- 15
39
41D1 210030855 1090002156 4010037106 2008 2008 6 4 869 101233

29- 13-
3,66
20 01- 03- 7
5
41D1 215311090 1090002155 4010037097 2008 2008 8 1 524 101233

21 22- 05-
41A1 11- 02-
215301141 1090001248 4010028080 2006 2007 4 0 956 101233
22- 05-
11- 02-
215301141 1090001248 4010028080 2006 2007 25 0 956 101233
215301141 1090001981 4010037830 28- 31- 24 0 1,157 101233
 02- 03-
2008 2008
13- 16-
71,6
03- 07- 59
76
215301141 1090003399 4010044730 2009 2009 24 18 1,215 101233

22- 05-
11- 02-
41A1 210000016 1090001248 4010028080 2006 2007 2 0 3,332 101233
22- 05-
22 11- 02-
41A1 210000016 1090001248 4010028080 2006 2007 2 0 3,332 101233
28- 04-
18,9
02- 06- 5
94
41A1 210000016 1090001981 4010037830 2008 2008 2 1 3,799 101233

88,51,49
Total Cost
9

5. In the following cases there was an increase in the stock levels as the purchase of
Spares was not based on the past consumption or the future requirement.

Avg Avg
Current %
Sl Material Avg PO GR PO Stock Stock
Plant PO No. PR No. increase
No. Code cons Date Date Qty Before After
Stock in Stock
RC RC
1 28- 18-
41D1 03- 01- 4 4 1.00 2.50 150.00
210456139 1 4010045211 2009 2010 1090003572
2 28- 31-
41D1 03- 07- 2 3 2.00 2.50 25.00
210456478 1 4010045211 2009 2009 1090003572
3 28- 31-
41D1 03- 07- 69 23.50 58.00 146.81
210000397 19 4010045211 2009 2009 40 1090003572
4 28- 31-
41D1 03- 07- 66 50.00 58.00 16.00
210000398 25 4010045211 2009 2009 40 1090003572
5 22- 28-
41D1 10- 11- 146 66.00 124.00 87.88
215308679 167 4010048389 2009 2009 148 1020022828
6 22- 06-
41D1 10- 03- 117 39.00 78.00 100.00
210456067 85 4010042037 2008 2009 50 1090002963
7 22- 28-
10- 11- 187 34.00 105.50 210.29
41D1 215301011 50 4010048389 2009 2009 192 1020022828
8 02- 31-
10- 10- 52 17.00 39.00 129.41
41D1 215308280 0 4010041723 2008 2008 26 1090002781
9 41D1 215301012 13 4010048389 22- 28- 50 91 34.50 1020022828 70.00 102.90
10- 11-
 2009 2009
10 02- 19-
10- 11- 103 115.00 159.00 38.26
41D1 215308379 174 4010041723 2008 2008 204 1090002781
11 23- 23-
10- 02- 22 11.00 19.00 72.73
41D1 210000017 0 4010048410 2009 2010 6 1020023645
12 22- 28-
10- 11- 174 39.50 105.50 167.09
41D1 215308835 92 4010048389 2009 2009 192 1020022828
13 17-
12- Not 5 3.00 5.50 83.33
41A1 210079897 2 4010049416 2009 Recd 4 1020023313
14 22- 28-
10- 11- 352 81.00 216.00 166.67
41D1 215301843 180 4010048389 2009 2009 384 1020022828
15 29- 26-
01- 03- 21 6.50 17.00 161.54
41D1 340408205 0 4010037106 2008 2008 8 1090002156
16 28- 24-
02- 06- 92 52.00 93.00 78.85
41A1 220923405 17 4010037830 2008 2008 40 1090001981
17 22- 30-
10- 11- 177 38.50 106.00 175.32
41D1 220923405 84 4010048389 2009 2009 192 1020022828
18 23- 31-
10- 12- 45 26.50 36.00 35.85
41D1 210000016 3 4010048410 2009 2009 19 1020023645
19 13- 17-
03- 07- 23 11.00 17.00 54.55
41A1 210017422 7 4010044732 2009 2009 11 1090003399
20 29- 31-
01- 03- 9 2.00 5.50 175.00
41D1 210017422 1 4010037106 2008 2008 4 1090002156

6. In the following instances the quantity purchased was more than the Average
consumption per Year.

Avg
PO Vendor
Sl Material Consu cons Extra
Plant PO No. PO Date Amount GR Date Qt
No. Code mption per Qty
y Code
Year
1 28-03- 18-01-
41D1 4 3
210456139 4010045211 2009 7,18,478 2010 3 1 100785
2 28-03- 31-07-
41D1 2 1
210456478 4010045211 2009 2,28,980 2009 1 1 100785
3 30-05- 26-02-
41D1
210000397 4010039564 2008 52,306 2009 42 15 20 22 100785
28-03- 31-07-
41D1
210000397 4010045211 2009 53,366 2009 40 33 20 20 100785
4 28-03- 31-07-
41D1
210000398 4010045211 2009 53,366 2009 40 27 20 20 100785
5 22-10- 28-11-
41D1 215308679 4010048389 2009 2,654 2009 148 104 83 65 839783
6 30-05- 06-03-
41D1
210456067 4010039564 2008 1,660 2009 200 6 53 147 100785
22-10- 06-03-
41D1
210456067 4010042037 2008 1,685 2009 50 133 53 50 100785
7 06-08- 04-09-
41D1 215301011 4010040654 2008 656 2008 210 282 110 100 101233
22-10- 28-11-
41D1 215301011 4010048389 2009 656 2009 192 261 110 82 839783
8 02-10- 31-10-
41D1 215308280 4010041723 2008 6,548 2008 26 12 21 26 101233
22-10- 31-12-
41D1 215308280 4010048389 2009 6,548 2009 34 28 21 13 839783
9 02-10- 31-10-
41D1 215301012 4010041723 2008 2,743 2009 29 36 22 7 101233
22-10- 28-11-
41D1 215301012 4010048389 2009 2,743 2009 50 8 22 28 839783
10 41 27-05- 12-09-
E1 210019211 4010039499 2008 749 2008 5 1 3 101233
41 12-01-
E1 210019211 4010049848 2010 794 Not Recd 2 1 1 2 101233
11 22-11- 18-01-
41A1 215311090 4010028080 2006 421 2007 6 2 3 101233
13-03- 17-07-
41A1 215311090 4010044732 2009 554 2009 11 3 1 9 101233
12 02-10- 19-11-
41D1 215308379 4010041723 2008 1,862 2008 204 240 105 99 101233
23-10- 23-02-
41D1 215308379 4010048410 2009 1,862 2010 196 237 105 91 839783
13 02-10- 19-11-
41D1 210000017 4010041723 2008 2,414 2008 12 2 2 10 101233
23-10- 23-02-
41D1 210000017 4010048410 2009 2,414 2010 6 2 2 4 839783
14 22-11- 05-02-
41A1 215308835 4010028080 2006 380 2007 50 24 25 25 101233
15 06-08- 04-09-
41D1 215308835 4010040654 2008 457 2008 210 270 125 85 101233
22-10- 28-11-
41D1 215308835 4010048389 2009 457 2009 192 272 125 67 839783
16 28-02- 25-04-
41A1 210079897 4010037830 2008 712 2008 10 4 6 101233
17 17-12-
41A1 210079897 4010049416 2009 681 Not Recd 4 5 2 2 101233
18 06-08- 04-09-
41D1 215301843 4010040654 2008 318 2008 422 534 250 172 101233
22-10- 28-11-
41D1 215301843 4010048389 2009 318 2009 384 536 250 134 839783
19 29-01- 26-03-
41D1 340408205 4010037106 2008 379 2008 8 3 3 8 101233
20 28-02- 24-06-
41A1 220923405 4010037830 2008 643 2008 40 41 17 23 101233
21 06-08- 04-09-
41D1 220923405 4010040654 2008 676 2008 210 270 125 85 101233
22-10- 30-11-
41D1 220923405 4010048389 2009 676 2009 192 260 125 67 839783
22 02-10- 19-11-
41D1 210000016 4010041723 2008 3,989 2008 8 11 4 4 101233
23-10- 31-12-
41D1 210000016 4010048410 2009 3,989 2009 19 8 4 15 839783

Selection of problem

Prioritization:

The 6 different cases of inefficiencies which were found in the study and the loss
incurred due to this inefficiency are as follows:

1. Increase in lead time

No of cases observed: 5

Loss incurred due to this: 2, 26,635.59 INR

Because of late supply & urgency of the material, in 3 cases the material is
bought from the OEM at much higher price and that extra price is calculated
as loss, for which supplier is not liable as per the terms and conditions agreed
in the contract.

2. Increase in price

No of cases observed: 3

Loss incurred due to this: 66,669 INR

The difference between the price before fixing the rate contract and price after
fixing the rate contract is calculated as loss.

3. No stock of material in the store

No of cases observed: 10

Loss incurred due to this: negligible

 4. No consumption, but material was purchased

No of cases observed: 22

Loss incurred due to this: 89, 08,166 INR

Based on average consumption of previous years, the excess stock in the

inventory is identified and cost incurred in buying the excess materials comes
as 71,26,533 RS and 25% of the value is considered as the inventory carrying
cost i.e. 17,81,633 RS. The sum of these two costs is treated as loss which
comes to 89, 08,166 Rs.

5. Increase in stock levels as purchase is not based on the past consumption

No of cases observed: 20

Loss incurred due to this: 16, 13,431.73 INR

The price of the material is calculated for the increased average stock of
inventory and, inventory carrying cost is calculated for the extra stock in
inventory.

6. Quantity purchased is more than average consumption

No of cases observed: 22

Loss incurred due to this: 70, 94,892 INR

The cost for the extra materials is taken and their inventory carrying cost is
added up and considered as total loss.

Graphical Representation of the losses incurred by these 6 problems:

Pareto analysis

• In order to find the relative importance of problems & the vital few problems
in a simple, quickly interpreted, visual format. PARETO ANALYSIS is done
for all the above cases in order to distinguish the critical problems from the
less significant problems with respect to COST. It is based on the fact that 80
% of defects are caused by 20 % of causes.

Vital ( 80%)

Thus the major problems which constitutes 80 % of all the problems are :

10000000
 No consumption , but material was purchased
9000000 49.73%
 Quantity purchased is more than average consumption

8000000

7000000
O
S
L

6000000
 As the 2 major problems states that as there is no consumption, but still
material was purchased, in some cases the consumption is very less
compared to the procurement and the quantity purchased is more than
average consumption per annum. By considering all these statements I
arrived to the major problem needs to be addressed in order to eliminate
the 80 % of defects in the system.

The vital problem that needs to be addressed is

“PROCUREMENT DESPARATE TO CONSUMPTION”

Defining the problem

Problem statement: procurement is disparate to consumption for the items which

were fixed in the Rate contracts.

Impact: increase in inventory with excess purchases, thus the objective of introducing
the Rate contract is not achieved

Objective: to develop a solution for procuring the materials which were there in Rate
contract as per the consumption, thus reducing the inventory.

Goal: to reduce the loss incurred due to excess purchases for the items under Rate
contract by around 75 %.

Now I focused my efforts in analyzing this vital problem in order to identify the
probable causes whose elimination leads to improvement.

Identification of causes

Analysis of the problem (fishbone diagram)

In order to identify many possible causes for the above defined problem I selected the
tool FISHBONE DIAGRAM also called as ISHIKAWA DIAGRAM. The probable
causes which drives the effect “procurement disparate to consumption” are identified
by the brainstorming session and numerous interviews conducted by the personnel’s
of MATERIALS MANAGEMENT DEPARTMENT, FINANCE DEPARTMENT,
INTERNAL AUDIT DEPARTMENT, ENGINEERING DEPARTMENT and sorted
into the categories of POLICIES, PROCEDURES, PEOPLE & PLANT
( INFRASTRUCTURE ) .

Cause & effect diagram

 policies
LI QUI DATED DA
CLAUSE I S NOT
I NSERTED I N
MM OFFI CER CAN DO CONTRACTS
MARGI NAL FOR PURCHASE
ADJ USTMENT UPTO 1 LAKH
5% OF QUANTI TY
Identification of sub causes

Now theI various

NDENTEDsub causes which are responsible for the above identified causes are
figured out. BULK PUR
TWO Y
OPERA
SPARES
SOME I TEMS COMMI SS
HAVE TO BE PROCURED I N
CausesANTI CI PATIin ON
due to inefficiencies people OF FAI LURES

UNRELI ABLE SUPPLI ERS

Causes due to inefficiencies in plant (sap/ erp) Pro cess o f L 1 bi

UN R ELI ABLE
SU PPL I E R S

D eficien cy in N o t able to u pdate

I n tern al co ntro ls
 CREATI ON O
REQUI STI O
Here in this case SAP/ ERP is considered as the infrastructure and the various causes
due to the inefficiency in ERP system were identified. EARLI
REQUI ST
REMAI NI NG
Causes due to policies

NON CLEAREANCE
STOCK I N TRANS
Causes due to inefficiency in procedure
LIST OF ALL SUB CAUSES DUE TO PEOPLE, PLANT, POLICY &
PE
PROCEDURE leading to the problem “procurement disparate to consumption”

1. In sufficient knowledge in usage of ERP.

2. Complex interface of ERP.

3. Resistance to change ( employees )

4. Network problems.

5. Low level of confidence in the data provided by ERP.

C
 6. Process of L1 bidding.

7. Deficiency in internal controls of ERP.

8. High lead time.

9. Unknown life expectancy

10. Commissioning problems

11. Inadequate operational skills required for new equipment.

12. Inadequate input controls of ERP.

13. More checks & inspections.

14. Equipment break down cannot be forecasted accurately.

Selecting the root causes (control- impact matrix)

Out of all the known possible root causes, it is not viable to attack all, so CONTROL-
IMPACT MATRIX is applied in order to sort out the root causes on the basis of its
controllability and its impact. Classification of all the causes in this matrix is arrived
by discussions with personnel’s of various departments and supported with the data
collected in some cases.

Control- impact matrix

 6, 13
IG
H

The causes which fall under HIGH IMPACT & HIGH CONTROL are viable to
address and they should be controlled first. All the causes whose impact is very high
and controlling of these inefficiencies are in our hand have to be attacked.

Findings

The vital root causes which are leading to the negative impact of Rate contracts were
identified.

 In sufficient knowledge in usage of ERP.

 Complex interface of ERP.

IM
A
C
P
T

 Network problems.

 Low level of confidence in the data provided by ERP.

 Deficiency in internal controls of ERP.

 Inadequate input controls of ERP

CONCLUSION & RECOMENDATIONS
3, 8, 9,10, 14
W
O
L

Conclusion

IMPETUS GROUP achieved most of its objectives by introducing Rate contracts.

Based on the study I found that there is a positive impact on the price of the material
and the lead time where Rate Contracts have been entered by Impetus Group, there is
a substantial decrease in the price and the lead time except in a few cases where there

LOW
are delays in delivery of the Material. However there is no decrease in the stock levels
of Material where Rate Contracts were entered, instead in many cases there is a
considerable increase in the Stock Levels without any increase in the consumption of
the Material.

Based on the study work performed I found:

4. Purchase Orders are being placed even though sufficient quantity of

Material was lying in the Stores. The total amount of Stock (as on 31 st
March 2010) which was not utilised even once from the time it was
bought is Rs. 88 Lakhs (as per sample study of 70 items out of a total
of 330 Material).
5. There was an increase in the Stock Levels.

The following table gives the stock of the Material of 330 items where Rate
Contracts were entered.

% increase
Consumption for the
Stock as on Amount Year on
Year
Year

2007
31-Dec-07 58,59,896 6,395,964

2008
31-Dec-08 1,65,14,549 181.82 9,885,554

2009
31-Dec-09 2,95,15,613 78.72 17,299,079

28-Feb-10 3,48,10,873 17.94

Taking the amount of loss incurred due to theses inefficiencies into consideration the
vital problem is detected as “procurement is disparate to consumption”. Week input
and internal controls of SAP/ ERP and insufficient knowledge in usage of ERP have
been identified as potential root causes which are responsible for this vital problem.
So management or the IMPETUS GROUP should focus on these identified causes
and necessary steps have to be taken in order to achieve the objectives of introducing
rate contracts.

Some necessary steps that have to be implemented by the management for the above
mentioned cause were recommended below.
Recommendations

• Strengthening input controls and internal control procedures to

ensure accurate and timely capture of data.
• Reorder level, maximum level and minimum level have to be fixed in
the ERP system.
• Controls have to be placed in such a way that system should not allow
to generate PR if it shows stock is greater than reorder level.
• Temporary material codes have to be effectively matched with their
mother equipment or with the permanent material codes in SAP ERP,
as indenters don’t have sufficient knowledge in identifying the
material with temporary material codes.
• Have to update the list of integrated suppliers who were fixed in the
Rate contracts in the SRM module
• Numerous cases in almost all vendors were noticed where spares were
purchased from RC vendor but the items concerned were not reflected
in SRM module even after revised price lists became operational. This
appears to suggest that there is inadequate system maintenance in
SRM module which has to be improved.
• One of the major objectives of Rate contracts is to reduce the time in
tendering process so as to procure the spares just in time for its
consumption. All vendors have specified the time lag between
placement of order and its supply. This lead time period is not
loaded in the SRM module and to the extent one of the main
objectives of RC would be defeated.

(Lead time data being vital to reduce carrying costs of spares I would suggest
that this data be loaded in SAP also, besides loading on SRM Module so that
any material code report taken from SAP would provide the user with data on
when the order has to placed )

• Accumulating information about RC purchases is difficult process

presently, as there are multiple vendors. The problem gets aggravated
due to mergers of the RC vendors and link in between the two vendors
does not get reflected in system. The process of data accumulation
could be simpler and more visible if a separate RC-PO series could
be allotted in SAP for PO’s under RC.

• Better coordination of PROJECT IMPETUS with PROJECT ICE to

ensure uniformity for maintenance & procurement.
 • The operations of Rate Contracts and the effect on inventory build up
may be monitored at an appropriate level.
• Organising regular training programmes to raise the level of user
awareness and minimise errors of data input and making available
updated operational documentation to the end users.

FINAL VALUE ADDITION

The final value addition has been done by finding the potential root causes of
operational inefficiencies in managing the spares which are under Rate contracts. And
some of these causes can be addressed to minimize the inventory for the items which
were not under rate contracts also.

NEXT STEPS
Though lots of efforts have been made to analyze the factors causing for the
operational inefficiencies in maintaining the purchases through Rate contracts, still
there is lot of scope for improvement as a whole. Some of the following areas that
have been identified for future study on the above subject:

1. Reduction of lead time in procurement to reduce stocking levels.

2. Vendor/OEM rating document can be made for all the suppliers
with whom rate contracts were fixed from the data which I
generated through SAP. The suppliers who were not up to the mark
would be put on Holidays and would not be considered for future
business in ONGC for new project.
3. Supply Chain Management concept can be introduced to ensure
material receipt on time by user group without any discrepancy. It
will include updating of physical facilities of stores and integration
with SAP.
4. A study can be carried out to review the performance of Material
Management (MM) module to ensure that input, processing and
output controls were in place ensuring reliability and integrity of
data.
ANNEXURE 1
Materials which are purchased under RC
Material
Code Count Quantity Net Value per unit
210456139 2 7 5,029,348 718,478
210456485 2 2 802,586 401,293
210456471 2 2 674,825 337,413
215303881 2 2 663,932 331,966
210456144 2 2 611,792 305,896
210618840 3 8 2,329,892 291,237
210456478 2 4 906,829 226,707
210456179 2 5 983,248 196,650
210000093 2 4 508,502 127,126
210001627 3 4 461,021 115,255
210005747 2 2 165,557 82,779
210456160 2 7 570,768 81,538
210002209 2 2 156,583 78,291
215310865 2 4 273,392 68,348
215301109 2 3 189,329 63,110
210000397 3 102 5,605,654 54,957
210456498 2 60 3,170,195 52,837
210000398 2 93 4,906,916 52,763
210003673 2 6 284,285 47,381
210003618 2 4 165,060 41,265
210456403 2 6 236,930 39,488
210618529 2 3 107,019 35,673
211505271 2 2 66,741 33,370
215308441 2 3 91,694 30,565
210004415 3 5 151,315 30,263
210456486 2 12 358,685 29,890
215308417 3 8 217,889 27,236
210456481 2 4 108,608 27,152
280001485 2 3 75,216 25,072
211501049 2 5 114,112 22,822
210456480 2 6 133,164 22,194
210081711 3 3 64,551 21,517
215388127 2 13 273,899 21,069
210000109 2 4 80,937 20,234
211505270 2 2 38,350 19,175
210456291 2 30 571,704 19,057
210003588 3 4 63,777 15,944
210004840 2 7 108,171 15,453
210077978 2 8 123,078 15,385
210001137 3 12 179,492 14,958
210004416 2 2 29,782 14,891
210002285 4 4 59,423 14,856
210003587 3 5 71,040 14,208
215329096 2 7 94,151 13,450
210004989 2 300 3,812,816 12,709
215308293 2 6 74,964 12,494
210003584 2 4 49,643 12,411
210004988 2 190 2,341,141 12,322
215308373 5 8 98,418 12,302
210456489 2 190 2,223,776 11,704
215308353 4 8 92,582 11,573
210004752 3 5 56,539 11,308
210003583 2 4 39,045 9,761
210456141 2 27 240,000 8,889
210000699 3 13 110,882 8,529
220001122 2 12 101,387 8,449
215308352 4 8 66,706 8,338
215308375 2 64 515,631 8,057
215301863 2 5 38,739 7,748
210000099 2 4 27,544 6,886
215301250 2 18 120,903 6,717
220923118 2 3 19,859 6,620
215308256 2 8 52,902 6,613
215301206 3 5 32,995 6,599
215308280 7 110 678,930 6,172
210456446 2 12 73,415 6,118
215378548 4 188 1,115,141 5,932
215308287 2 6 33,648 5,608
215303730 2 15 84,098 5,607
210077808 2 12 65,450 5,454
215317012 3 4 21,514 5,378
210030846 2 4 21,355 5,339
210001459 2 8 39,885 4,986
220923409 5 11 52,561 4,778
210073433 8 17 80,666 4,745
215308338 5 16 73,844 4,615
210002248 2 4 18,214 4,554
210456362 2 28 127,149 4,541
220000604 2 18 76,510 4,251
220000966 2 5 21,169 4,234
210019780 6 21 87,754 4,179
210004990 2 6 25,023 4,171
210002197 3 4 16,463 4,116
215320726 3 3 12,147 4,049
215308701 3 9 35,532 3,948
210456068 2 250 976,876 3,908
220923411 4 17 65,744 3,867
215308393 3 18 68,895 3,828
215308600 2 24 85,178 3,549
210005565 2 16 55,527 3,470
210000016 13 74 256,356 3,464
215308188 2 4 13,280 3,320
215326493 2 2 6,623 3,312
215321173 2 2 6,377 3,189
210002702 2 3 9,459 3,153
215378568 2 8 24,713 3,089
215307480 4 8 23,753 2,969
210456354 2 120 350,994 2,925
215308442 2 96 278,511 2,901
210004755 3 5 14,139 2,828
210456466 2 20 55,618 2,781
210456358 2 130 358,892 2,761
215308348 4 79 213,290 2,700
215308679 3 258 680,894 2,639
210002132 2 8 20,069 2,509
210003578 2 8 19,721 2,465
215301718 4 13 31,400 2,415
210002244 2 2 4,813 2,407
280001306 3 21 50,278 2,394
210456408 2 2 4,672 2,336
210001017 3 20 45,877 2,294
215301012 7 197 440,753 2,237
211504096 2 6 13,348 2,225
210017716 5 14 30,939 2,210
215301985 4 49 104,004 2,123
210000017 8 43 87,722 2,040
215308292 4 30 59,910 1,997
215378565 3 12 23,410 1,951
215301970 6 24 44,738 1,864
215308272 3 26 47,109 1,812
210003604 2 2 3,582 1,791
210001016 4 26 45,968 1,768
210002184 2 9 15,814 1,757
215310558 2 4 6,988 1,747
215307330 6 15 26,154 1,744
215308379 8 670 1,167,647 1,743
210001490 2 10 17,321 1,732
210002782 2 10 17,270 1,727
215301864 3 12 20,676 1,723
210001563 3 23 39,604 1,722
220923399 2 6 10,328 1,721
220923235 4 17 29,030 1,708
215330888 3 640 1,067,435 1,668
210456067 2 250 416,283 1,665
210005746 2 4 6,509 1,627
215304238 3 5 7,526 1,505
215308444 4 28 42,118 1,504
210004475 4 31 46,524 1,501
210456157 2 8 11,954 1,494
210456070 2 60 88,793 1,480
215308688 2 12 17,655 1,471
215308683 4 16 23,375 1,461
215308015 2 8 11,565 1,446
210618330 3 262 365,890 1,397
215301110 2 6 8,178 1,363
210004987 2 36 47,253 1,313
210002200 3 19 24,669 1,298
210000097 2 6 7,628 1,271
210004991 2 6 7,628 1,271
220000606 2 21 26,391 1,257
210017326 5 21 26,214 1,248
215308623 2 6 7,181 1,197
210002201 4 21 24,828 1,182
215308072 2 14 16,432 1,174
210000098 2 4 4,661 1,165
215378477 2 16 18,423 1,151
210002185 2 9 10,313 1,146
210001478 2 4 4,575 1,144
215301879 3 15 17,026 1,135
210004832 4 6 6,705 1,117
210456066 2 980 1,092,645 1,115
210456150 2 12 13,348 1,112
210002207 2 16 17,257 1,079
210000158 3 33 35,541 1,077
215378512 2 8 8,475 1,059
210750828 2 79 82,250 1,041
215304294 5 16 15,715 982
215301201 3 6 5,861 977
215323140 7 585 562,080 961
215308605 3 6 5,751 958
210001474 3 8 7,604 951
210000095 2 4 3,602 900
215320735 3 3 2,683 894
210003829 2 10 8,757 876
215301958 2 2 1,741 870
215301906 4 18 15,364 854
215378442 2 14 11,922 852
210618133 2 17 14,417 848
215308090 2 5 4,225 845
215301141 5 101 84,666 838
215308110 2 19 15,234 802
215308013 3 13 10,387 799
215308308 2 12 9,309 776
215337155 4 123 95,159 774
215378499 2 8 6,138 767
210003601 2 12 8,837 736
215308014 3 14 10,286 735
215308271 3 26 18,864 726
210004829 3 8 5,765 721
220923324 5 11 7,830 712
215336318 3 21 14,771 703
210019211 7 57 39,786 698
215301990 3 18 12,451 692
210000096 2 4 2,754 689
215308012 2 10 6,681 668
215378623 2 10 6,504 650
210456159 2 8 5,085 636
215301011 6 732 461,871 631
210007008 2 14 8,816 630
210003606 2 4 2,486 621
220923405 10 886 544,253 614
210003607 2 4 2,428 607
215308316 3 18 10,607 589
210017422 13 80 45,931 574
210004665 4 210 120,086 572
215307718 3 37 21,126 571
210018513 2 18 10,149 564
215308764 7 42 23,643 563
220000969 2 30 16,842 561
215321485 2 4 2,233 558
210005560 2 4 2,222 555
210000855 3 6 3,297 550
210000698 4 16 8,547 534
210007164 2 23 12,264 533
220923111 4 60 31,928 532
215301755 3 28 14,869 531
210018526 3 15 7,752 517
210456284 2 60 30,777 513
215308006 4 27 13,480 499
215308172 2 8 3,982 498
210030855 7 47 23,377 497
210001454 2 8 3,964 496
215308601 3 22 10,831 492
210001475 2 8 3,933 492
210000723 3 11 5,390 490
210618270 2 4 1,925 481
210001494 3 8 3,806 476
210001481 2 17 7,952 468
215378211 4 23 10,732 467
210003582 2 8 3,726 466
215321212 3 50 23,219 464
210030656 3 23 10,667 464
210004753 2 18 8,160 453
210000228 7 48 21,735 453
215308176 2 5 2,256 451
210017625 2 24 10,816 451
210077580 2 48 21,596 450
215308835 8 772 337,607 437
215308753 2 2 866 433
210002326 2 24 10,324 430
215378583 3 82 34,906 426
210002198 2 3 1,246 415
215331114 3 6 2,478 413
215311090 7 39 15,970 409
210618807 5 31 12,609 407
215308457 3 18 7,312 406
210077840 3 10 3,984 398
210077586 2 8 3,182 398
215301212 2 4 1,591 398
210001511 2 2 794 397
215342279 6 46 18,014 392
210079897 8 49 19,063 389
215308347 3 36 13,788 383
215308319 3 6 2,265 377
210030199 6 31 11,112 358
210019657 4 12 4,256 355
210017187 4 60 21,151 353
210001469 2 25 8,749 350
210081189 2 4 1,379 345
210074792 4 18 6,187 344
215374299 4 20 6,699 335
210018503 3 30 10,014 334
215308005 4 99 32,789 331
220923398 3 8 2,622 328
210001464 2 128 41,187 322
220012001 8 28 8,881 317
215378409 2 18 5,639 313
215301843 8 1578 483,165 306
210060306 4 27 8,136 301
215378603 2 8 2,395 299
210073703 4 16 4,744 297
210001492 3 16 4,650 291
215301200 3 6 1,743 291
210019742 3 3 869 290
210001449 2 128 36,977 289
210001453 2 11 3,146 286
210001484 2 9 2,536 282
210073344 2 9 2,535 282
340021065 2 12 3,373 281
210030827 3 10 2,808 281
215301956 2 2 559 280
215303492 3 8 2,205 276
215307250 2 4 1,088 272
210073345 3 15 4,064 271
215308420 3 20 5,380 269
223301572 2 8 2,147 268
210004986 2 24 6,375 266
210013801 3 18 4,752 264
340408205 8 58 14,393 248
210019704 7 41 10,133 247
210456243 2 180 44,049 245
210618836 3 40 9,689 242
210017154 3 144 33,683 234
210001473 2 9 2,078 231
210004750 4 16 3,518 220
900002584 2 2 439 220
210018482 5 62 13,573 219
210019849 7 49 10,596 216
210456468 2 251 53,180 212
210017628 3 14 2,929 209
220923090 8 26 5,283 203
210018185 6 202 40,260 199
215314062 3 18 3,582 199
215328737 2 10 1,980 198
215301955 3 162 31,946 197
210456440 2 209 41,042 196
210001450 2 19 3,731 196
210018522 2 7 1,371 196
215308279 3 250 48,859 195
210017077 3 160 31,212 195
210001491 3 8 1,554 194
215309634 5 31 5,668 183
215301789 2 16 2,923 183
210030196 4 20 3,635 182
210456461 2 36 6,112 170
210456140 2 57 9,656 169
210618131 6 604 101,575 168
215308652 7 40 6,634 166
210030828 5 264 43,646 165
210019672 4 27 4,391 163
210001495 2 64 10,202 159
215317049 4 21 3,197 152
215301854 2 2 293 147
210030897 2 12 1,746 145
215308363 3 496 71,877 145
210456443 2 260 37,575 145
210016041 2 8 1,155 144
215339417 2 8 1,138 142
210002263 2 4 560 140
210001488 3 9 1,242 138
210081187 2 6 823 137
210018011 4 13 1,780 137
210000435 2 4 545 136
210074784 4 28 3,794 135
210456442 2 1300 173,473 133
210056129 5 41 5,451 133
210060431 3 22 2,904 132
210081126 2 352 46,441 132
210005562 2 12 1,508 126
210030030 4 33 3,971 120
210073644 3 5 598 120
210018686 7 81 9,484 117
210077078 2 14 1,631 117
210018081 3 92 10,561 115
210618046 3 44 5,017 114
210456487 2 24 2,670 111
210005561 2 31 3,351 108
210001465 2 128 13,734 107
215308004 3 144 15,435 107
210017361 3 12 1,278 106
210019820 8 30 3,183 106
210017406 4 16 1,686 105
212301590 5 24 2,511 105
215303844 4 40 4,138 103
215328740 3 3 307 102
215301632 6 127 12,940 102
215378573 5 23 2,322 101
210018071 4 55 5,539 101
210456069 2 222 22,239 100
ANNEXURE 2
List of materials selected for Final Sample
Material
Code Count Quantity Net Value per unit
210456139 2 7 5,029,348 718,478
210456485 2 2 802,586 401,293
210456471 2 2 674,825 337,413
215303881 2 2 663,932 331,966
210456144 2 2 611,792 305,896
210618840 3 8 2,329,892 291,237
210456478 2 4 906,829 226,707
210456179 2 5 983,248 196,650
210000093 2 4 508,502 127,126
210001627 3 4 461,021 115,255
210005747 2 2 165,557 82,779
210456160 2 7 570,768 81,538
210002209 2 2 156,583 78,291
215310865 2 4 273,392 68,348
215301109 2 3 189,329 63,110
210000397 3 102 5,605,654 54,957
210456498 2 60 3,170,195 52,837
210000398 2 93 4,906,916 52,763
210004989 2 300 3,812,816 12,709
210004988 2 190 2,341,141 12,322
210456489 2 190 2,223,776 11,704
215308280 7 110 678,930 6,172
215378548 4 188 1,115,141 5,932
210456068 2 250 976,876 3,908
210456354 2 120 350,994 2,925
210456358 2 130 358,892 2,761
215308679 3 258 680,894 2,639
215301012 7 197 440,753 2,237
215308379 8 670 1,167,647 1,743
215330888 3 640 1,067,435 1,668
210456067 2 250 416,283 1,665
210618330 3 262 365,890 1,397
210456066 2 980 1,092,645 1,115
215323140 7 585 562,080 961
215301141 5 101 84,666 838
215337155 4 123 95,159 774
215301011 6 732 461,871 631
220923405 10 886 544,253 614
210004665 4 210 120,086 572
210073433 8 17 80,666 4,745
210000016 13 74 256,356 3,464
210000017 8 43 87,722 2,040
210019211 7 57 39,786 698
210017422 13 80 45,931 574
215308764 7 42 23,643 563
210030855 7 47 23,377 497
210000228 7 48 21,735 453
215308835 8 772 337,607 437
215311090 7 39 15,970 409
210079897 8 49 19,063 389
220012001 8 28 8,881 317
215301843 8 1578 483,165 306
340408205 8 58 14,393 248
210019704 7 41 10,133 247
210019849 7 49 10,596 216
220923090 8 26 5,283 203
215308652 7 40 6,634 166
210018686 7 81 9,484 117
210019820 8 30 3,183 106
215308373 5 8 98,418 12,302
220923409 5 11 52,561 4,778
215308338 5 16 73,844 4,615
210019780 6 21 87,754 4,179
210017716 5 14 30,939 2,210
215301970 6 24 44,738 1,864
215307330 6 15 26,154 1,744
210017326 5 21 26,214 1,248
BIBILOGRAPHY
1. report on project impetus

2. ongc annual report 2008-2009

3. www.ongcreports.net

4. www.etenders.ongc.co.in

5. materials management manual ( updated on 28th may 2008 )

6. report on project ice

GLOSSARY
IMPTUS Implementing Maintenance & Procurement Efforts through Upgraded
Systems

ONGC Oil & Natural Gas Corporation

ERP Enterprise Resource Planning

ICE Information Consolidation for Efficiency

OEM original equipment manufacturers

EPC executive purchase committee

MM materials management

RC Rate contract

PR Purchase Requisition

PO Purchase Order

LOI Letter of Indent

EMD Earnest Money Deposit

BEC Bid Evaluation Criteria

NIT Notice Inviting Tender

TC Tender Committee

K-G Krishna – Godavari

E&P Exploration and Production

MTOE Million Metric Tonnes of Oil Equivalent

PSU Public Sector Unit

SCADA Supervisory Control and Data Acquisition

RFQ Request for Quotation

DGS&D Director General of Supplies and Disposals

T code Transaction code

GR Goods Receipt

L1 Low 1

SRM Supplier Relationship Management

SAP Systems, Applications and Products