AN ISO 9001:2000 CERTIFIED UNIT

Store Provisioning & Material Management

INDEX

SL TOPIC PAGE NO

1. Purchase Procedure 1
2. Forecasting/Planning of Direct/Indirect Materials 5
3. Tender Purchase Committee 8
4. IFD/Indent 9
5. ABC technique and Selective Control 13
6. Inventory Control 35
7. Import 37
8. Introduction to Stores - Salient Features 46
9. Store Functions 47
10. Stores Receipt, Issues, Stores Office Procedures 48
11. Disposal 51
12. Store Keeping 54
13. Issue of Stores 55
14. Stores Accounting Responsibility 55
15. Issue of Stores/Preparation of Documents/I.Vr. 56
16. Book Keeping 57
17. CRV, IV, Demand Notes 58
18. ABC Analysis 59
19. Stores Organisation & Control 59
20. Preservation 64
21. Biological Hazards 64
22. Stock Verification 70
 PURCHASE PROCEDURE

WHAT IS PURCHASE MANAGEMENT?

As we know in any manufacturing organisation more than 2/3 of the cost of
production is the cost of material now, this material is to be made available well in
advance before commencement of production. So, in simple Purchase management is to
procure the necessary raw material / finish components for out Tank well in advance
before commencement of Assy. Of Tank. At the same time inflated inventory will not
look up, scarce capital but will add to the cost of care & custody & in the long run, in
larger wastage. For performing such a complex task it is necessary to ensure a perfect
them between timely and accurate assessment of requirement, timely ordering and timely
materialization of supplies as practicable.

TENDER ENQUIRY

We have selected vendor list of the different types of items. Normally tender
enquiry is given to six or more than six vendors to have the competition among the
vendors. Tender enquiry will be received after quoting due rates and will be opened in
the presence of orderly officer & material office & rates will be entered in the spot CST.
Once tender rates are filled up in the spot CST the spot CST is will be scrutinized by the
staff concern and due officer of the purchase section. Now if total value exceeds more
than Rs. 20,000/- A/C clearance has to be taken for other (HVF Rs. 50,000/-) if value
exceeds more than 50,000/- A tender purchase committee will decide about the
placement of order. Once TPC decide order will be released on the firm.

Various power for the officers given by President of India for production items:-

Up 4,00,000/- WM
4 to 10 lack DGM
10 to 20 lacs AGM
20 to 50 lacs GM

VETTING PROCESS

In Ordnance Factories, in olden days the vetting responsibility was rest with
Service Inspectors. Hence much more time was wasted for vetting of documents. Now
the vetting responsibility rest with respective factory Management. Normally every
factory should have one vetting cell. But only few factories are having vetting cell and
most of the factories are not having vetting cell. Normally the vetting cell is attached with
Inspection Department of any factory. Vetting process is an important factor for
Purchase Department. It is essential to have every manufacturing unit one Vetting cell.
The responsibility of vetting cell is to keep only the latest drawings/specifications and
destroy old drawings/specifications.

In this competitive world, due to changed requirement of public, the design of the
items are being changed day by day. The users are willing to use only modernized & new
model items, which results in change in design. Hence all the manufacturing units also
often changing the designs as per the requirement of the users. To cope up the changed
requirement of the items, it is essential to change the drawings/specifications.
It is the customary for the design office to consult the marketing department. If
the design is getting changed, then automatically the drawing/specification also getting

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changed. The duly approved modified drawing/specification should be sent to vetting
cell as early as possible. On receipt of the modified drawing/specifications, the vetting
cell will immediately make necessary amendments to drawing/specifications or if
required they will completely destroy the old drawing/specification and keep the new
modified drawing/specification. If the vetting cell feels to keep the old unmodified
drawing/specification also then they should keep separately in old record room.

The responsibility of the vetting cell is that they should do the vetting of Purchase
documents. It is essential that the initial document for purchase i.e. M.P.Sheet or SHIS
or SIS is to be vetted by vetting cell. They should check in the M.P.Sheet or SHIS or SIS
whether the drawing or specification given in the document is the latest one available in
the vetting cell. If they found that the old drawing No or specification is mentioned in the
document then they should immediately amend the correct drawing No/Specification in
the document and also they should intimate the concern section to make the change in
the drawing/specification. Also in some cases the purchase sections will forward the
tender document also to vetting cell for vetting purpose.

Hence vetting is very important aspects in the purchase process.

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DIRECT AND INDIRECT MATERIALS

For the purpose of ascertaining the cost of various articles produced in the factory,
materials utilised in production are classified as direct materials and indirect materials.
Materials which forms part of the finished product is defined as direct material. Materials
drawn for general shop use, maintenance and repair services etc., are treated as indirect
materials and charged as part of overhead charges.

PROCUREMENT OF MATERIALS:

Materials required for production are obtained in advance of the period of

utilisation and working stocks are held at all times so that production may continue
without interruption. The demands from the services for factory manufactured items are
communicated to O F Board covering the requirements of 3 years. Based on these
demand O F Board places extracts on the previous materials is taken by the factories in
accordance with the orders issued by Govt in this regard from time to time.

WORKING STOCKS:

According to current procedure, provisioning for working stock of materials

should normally be made on the basis of 6 month's assessed requirements based on the
firm demands and indents for stores can be placed for 18 months in advance of the period
of utilisation. In the case of timber items, provision for one year requirement may be
made, two years in advance based on average consumption of the past 18 months. In the
case of seasonal items, like hides and tanning materials provision for 12 months
requirements at a time may be made i.e. 18 months in advance of utilisation, based on the
monthly average consumption of the past 18 months.

In the case of imported stores, or other items which are difficult to procure,
provision may b e made for 12 months requirements, 18 months in advance of the period
of utilisation. Provision for general purpose stores and maintenance stores which are not
directly required against production are made on the basis of the monthly average
consumption of the proceeding 18 months. Stock piles of non-perishable imported
materials may be built upto 9 months requirements and if indigenous materials difficult
to obtain upto 4 months requirements except in cases where higher limits have been
specially authorised by the Govt. Requirements are to be calculated on the basis of peak
production capacities as may be available on 31st March.

In all the above cases, delivery dates shown in the indents should be suggested so
that, as far as possible, the actual stock at the factory is restricted to 6 month/12 months
requirement at any time as stipulated above.

SAFETY BALANCE

In addition, as a safety balance of one month for indigenous materials and 2

months for imported materials is possible. In the case of materials which are difficult to
obtain, these safety balance may be raised to 2 months and 4 months respectively.

STOCK-PILE ITEMS

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 Certain strategic stores which are difficult to procure in case of failure of normal
supplies are stock-piled. Such reserves of stores are financed from the budget grant for
Capital Expenditure. These stores are accounted for in a separate ledger called Capital
Store Ledger, as distinct from the regular Store Ledger, and separate bin cards are also
maintained by the Factory for these stock pile items. The balance in this Capital Store
Ledger is shown as a separate item in the Capital Assets Account of the factory.

PLACING ORDERS

All indents for imported stores are progressed by O.F.B. Indents for stores to be
procured through central purchase Agency are transmitted to the D.G.S & D. by the
Factories themselves. Where the requirement for an item does not exceed Rs. 25,000 in
value, stores are purchased by the Factories direct, under General Manager's powers for
local purchase.

REVIEW OF STORES

A six monthly review is carried out by the Factory (with the assistance of the
Accounts Staff) of slow and non-moving stores as disclosed from the transactions posted
in the ledger folios. Stores found surplus to the requirements of the factory are declared
for disposal. Prior to disposal lists of such stores are circulated to other factories and
other Defence Departments and if any of the items are required by them, these are issued
to them. The surpluses are declared to the Central Disposals Organisation (D.G.S. & D),
(except in the case of salvage and scrap other than iron and steel scrap arising, and other
items of stores not exceeding Rs.5000 in a single category) for arranging disposal. He
above procedure is also applicable to plant and machinery items.

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 FORECASTING/PLANNING OF
DIRECT/INDIRECT MATERIALS

INTRODUCTION

Business always operate in uncertain conditions and therefore must fact risks.
The survival of a product in the market for along period is essential for the growth of the
enterprise. Demand forecast is a technique, which helps the manager to qualify the
demand for the product for some time to come.

MEANING OF FORECASTING

Trying to know what is going to happen in near future, say after w week, a month
(or) a year is called forecasting. It is an act of predicting the future on the basis of data
past & present. Forecasting is an important aspect of business administration.

Different programmes are generally planned on the basis of forecasting. There

may be weekly, monthly or yearly one. It maybe for a particular market segment - say a
medium class or high-class segment. For precise and accurate forecasting some relevant
business data are compared and analysed in the thinking or probing the events of future
cannot, therefore be looked upon as guess work (or) gambling. It is based on facts and
figures. In business forecasting has been considered as the first step in planning &
scheduling. It enables the management to know the future, which is considered as
uncertain.

In the recent times a lot of research has been conducted to develop scientific methods
to forecast accurately and enable a businessman to reduce the risk involved in his
activities. A scientific forecast does not refer to only estimates, sales, production, profits
etc., The known data have to be related to relevant factories to enable to take decisions.
The process of forecasting may therefore be broken into two parts as follows:

1. An analysis of past conditions

2. An analysis of current conditions with reference to a problem future tendency

The forecast may be inaccurate due to following mentioned two factors.

1. The use of incorrect data/information's past/present.

2. Even if the data is correct, some faulty reasons may have been applied to them.

NECESSARY STEPS TO HAVE AN EFFICIENT FORECAST ON DEMAND

1. One has to identify and clarify state the objectives of the forecasting problem.

Approach to short - term may be different from long term forecast.

2. One has to ascertain the determinants of demand of the product (or) product
group.

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 3. One has to select the appropriate method of forecasting depending on the
objectives of the analysis, the nature of products involved, the types of data
available etc.

DETERMINING SCOPE OF FORECASTING

Before choosing an appropriate method, one has to know the specific purpose for
which the predictions are sought. Defining scope of the forecasting exercise is therefore a
pre-requisite. There are a minimum of six considerations which need to be taken care
while determining the scope of forecasting exercise.

1. PERIOD OF FORECAST

- Short term
- Medium term
- Long term

2. LEVELS OF FORECAST

a. Macro - Micro economic

b. Industry Demand
c. Firm Demand
d. Product-line Demand

3. PURPOSE OF FORECAST

a. General Purpose
b. Specific Purpose

4. TYPE OF PRODUCTS

- Established Products
- New Products

5. TYPE OF COMMODITY

- Capital Goods
- Consumer durables
- Consumer non-durables

6. MISCELLANEOUS FACTORS

Misc factors to be included or not has to decide how much sociological &
psychological factors are going to affect the forecast.

FORECASTING METHODS

Since forecasting plays an important role in decision making, it is crucial to use

the best available technique to minimize forecast inaccuracy. However, there is no

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unique method, which always guaranties the bast result. Furthermore, the choice of a
method often dictated by data availability and by urgency with which forecasts are
needed. Many times, forecasters are forced to use a less reliable method, as the required
data for the use of a more reliable method are not available. If the use of better technique
is time consuming and/or the forecasts are needed rather urgently, forecasts are made on
the basis of less reliable techniques. Therefore it is important to get acquainted with the
whole range of technique of forecasting. The various forecasting methods are given in
the next page.

FEATURES OF GOOD FORECASTING

The following are the features of a good demand forecasting:

ACCURACY:

It is desirable to have an accurate forecast, but the problem is how accurate? This
question can be answered only in terms of the value of marginal precision compared to
its cost.

FLAUSIBILITY:
The executives who use the forecasting results must have faith & belief in the
method. The implication is that they have to understand how the estimate was made.
DURABILITY:

The durability of the forecasting power of a demand function depends "partly on

the reasonableness & simplicity of functions fitted, but primarily on the stability of the
underlying relationships measured in the past".

FLEXIBILITY:

The need for flexibility stems directly from the need for durability. Flexibility.
Flexibility can be viewed as alternative generality.

AVAILABILITY:

Immediate availability of data is a pre-requisite. Infact, the non-availability of

data and the search for reasonable approximations on relevance in late data is a constant
strain on the forecaster's patience.

TENDER PURCHASE COMMITTEE

Whenever the total value of one item exceeds Rs.25,000/- in the case of all the
Ordnance Factories like OCF, HAPP etc and Rs.50,000 in the case of HVF, EFA & VFJ,
then the recommendation of Tender Purchase Committee is essential.

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 Whenever the purchase action for any item is being taken it is the first duty of the
purchase section to checkup with reference to the last paid rate whether the total value of
any one item is exceeding the above mentioned limits. If the Purchase section comes to
know that the recommendation of Tender Purchase Committee is essential, then
immediately on floating the Tender Enquiry the case file with all the available documents
to be forwarded to local Accounts Office for obtaining Provisioning Angle Clearance
(APC). With out getting PAC from Local Accounts Office the Tender Purchase
Committee will not agree to give their recommendations.

There are 4 levels of Tender Purchase Committee. They are Level - I, Level - II,
Level - III & Level - IV. These levels have been formulated as per the financial powers of
the Purchase Officers in Ordnance Factories.

The Financial Limit and Chairman & Members in T.P.C. are as follows:
Level Financial Limit Chairman Members
1) WM of User Section
2) Sr.AO(or) AO (Fys)
WM of Purchase
IV Rs. 50,000 Up to 4 Lakhs 3) If required WM of
Section
planning or Inspection
can be included
1) DGM of User Section
2) DC of A or Sr AO (Fys)
DGM OF
III Rs.4 Lakhs Upto Rs.10Lakhs 3) If required DGM of
Purchase Section
Planning or Inspection
can be included
1) AGM of User Section
2) DC of A or Sr AC of A
Rs.10 Up to Rs.20 AGM of Purchase
II 3) If required AGM of
Lakhs Lakhs Section
Planning or Inspection
can be included
1) AGM of Purchase
Section
Above 2) AGM of User Section
I Rs.20 Up to 50 Lakhs GM 3) C of F & A (Fys)
Lakhs 4) If required AGM of
Planning or Inspection
can be included.

IFD / INDENT

IFD - INTER FACTORY DEMAND

A specified format is available for IFD which to be filled up for that particular
items which is required from the factory.

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RATE CONTRACT

A rate contract is a contract for the supply of stores at specified rates during the
period as specified in the contract no quantities are mentioned in the contract, and the
contractor is bound to accept any order which may be placed upon him during the
currency of the contract at the rate specified there in.

Rate contracts are placed by DGS & D an established / registered suppliers. Some
time more than one rate contracts are placed for same item.
CANCELLATION OF SUPPLY ORDER

Order can't be cancelled just like that. If same default on the part of supplier.
D.O. has to inform DGS & D for cancellation.

DEFINITION OF A CONTRACT

An agreement enforceable by law is a contract. An agreement must not be based

on something which is impossible of performance.

A contract must in writing and / or must be duly registered where so required by

some statute. Contract for purchase / sale should be in writing but not be registered.

All the elements above must be present in an agreement, otherwise it will not lead
to a contract.

REVOCATION OF AN OFFER

An offer may be revoked anytime before acceptance, but not afterwards.

VOID AGREEMENT

An agreement is void where it fails to generate rights and obligations between the
parties due to any flow in its content or the process through which it has been arrived at
Termination of contract.

A contract is terminated when the obligation created by it come to an end which may
occur in the following manner.

1. By Performance
2. By Mutual agreement
3. By lapse of time
4. By operation of law
5. Termination by material alternation
6. Termination by Break of contract
7. Termination by subsequent or supervening impossibility.

LAW OF ARBITRATION - ACT 1940

1. A valid agreement must be in writing and satisfy all the essential elements of valid
contract.

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 2. The agreement may be to refer the present different or likely future the difference
to arbitrate

3. When there is an arbitration clause in a contract and the contract comes to an end
owing to frustration or becomes avoidable, the arbitration clause may still
continue to be binding.

4. Agreement to refer to dispute to arbitration is not valid if it lacks the essential

elements of contract.

5. The construction of an arbitration agreement is not thwarted by narrow pedantic

interpretation

RISK PURCHASE

Risk purchase cost is the difference between all-inclusive price of the fresh
contract concluded for repurchase and corresponding cost of contract on the defaulting
firm which has been cancelled.

ROLL OF COMPUTERS IN MATERIALS MANAGEMENT

The process of computerization in most of Ordnance Factories started a long

before. At present most of the Ordnance Factories have distributed computer net work
system consisting of HCL Magnum Mini computer with Printers and PCS distributed all
over the Factory premises covering various departments like Stores, Purchase,
Production Control, Accounts etc for generating documents like Tender Enquiry,
Quotations, CST, Supply Orders, M.I. Slip, transaction accounting, general documents
and order release, decision making, monitoring and reports by respective areas.

In a manufacturing Industry the cost of materials accounts for more than two-
thirds of total cost of production. Inventory management calls for handling large volumes
of transactions in the area of material requisitions, Tenders, Quotations, Purchase orders,
amendments to Purchase orders, receipts, issues and accounting of materials.

Integrated data bases enable these objectives to be realized using an integrated

approach. Application systems are built to share data in a central data base. The data is
held only once, so that maintenance of data problem is minimized and reconciling data
from different system do not arise. An integrated data base system demands that data be
held with in a more complex structure than for conventional system. This is because
different system need to access the same data in different ways and the data base may
have to support many different access path to the same data. With the data base
approach the data is held in a manner allowing for expansion and change in
requirements.

The following are some of the applications already computerised.

1. Inventory Planning & Control
2. Production document generation
3. Spares Planning & Control
4. Quality Control

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 5. Personnel Management
6. Pay Roll
7. Maintenance Management
8. Material Requirement Planning
9. Payment Analysis
10. Factory Accounts
In HVF, Avadi computerization activity in the area of Material Management
started in the year 1970 when the order release, Stock Update, material accounting (PSL)
etc were attempted in the computer as a routine ledger maintenance by entering
accounting transactions like Daily receipts, Receipt Vouchers, Demand/Return notes etc
which has facilitated generation of different types of output required by various
departments.

All the Ordnance Factories have developed the INENTORY MANAGEMENT

SYSTEM using the magnum computer database (RDBMS-INFORMIX) and on-line
transaction processing system. One of the most frequent requirement placed on database
system is that the data to be accessible from interactive terminals located at various
Remote job Entry (RAE) areas all over the Factory. This is extremely useful as it has the
effect of bringing the data closer to the people who use it as a part of their day to-day
activities.

The inventory management application has been developed with a transaction

processing inter-face to cater for on-line enquiries / updates. After detailed analysis the
database has been designed to cater the real-world situation representating relation
between work order and material requisition, Purchase Orders, material receipts issues,
pricing etc.

The inventory management system provides the following facilities.

A. MASTER INFORMATION

1. Item description Master

2. Bill of material
3. Party Master
4. Purchase Order
5. Stock item master
6. Packing system

B. PURCHASE ORDER

1. Tender Enquiry
2. Quotations
3. C.S.T.
4. Supply Order
5. Query

C. INVENTORY MAINTENANCE AND ANALYSIS

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 Stock control is the function of planning and maintaining of right quantity of
materials for a given production programme with the minimum investment. The system
is developed with the following objectives.

To ensure that materials are available as and when required by production

department.

To ensure that materials are neither over stocked nor under stocked.

To purchase material at an economical price at proper time

To keep control over consumption of materials.

To avoid heavy losses due to price falls.

MATERIAL INWARD SLIP (M.I.S)

M.I. Slips are prepared mechanically on day - to - day basis based on the invoices.
With the help of pre-stored purchase order details and other master data like item
description, party master etc. the job of the operator is minimized. Since the interactive
terminals are located all over the Factory the information regarding the receipt of item is
accessible to the waiting production shop. Facilities are also available to feed the
outcome of the sentencing of the item. In case of rejection if any the Rejection memo can
be prepared mechanically through the computer.

Posting of Receipt vouchers are done through ON-LINE by stores. During these
activities the corresponding Stock and the Purchase order records also get updated
automatically.

1. Raise MIS
2. Release MIS
3. Sentence MIS
4. Forwarding MIS after sentencing
5. Post receipt voucher
6. Inquire MIS
7. Delete MIS
8. Print MIS (Complete)
9. Print selective MIS
10. Print Daily Receipt Report
11. Print MIS outstanding Report
12. Print posted receipt vouchers
13. Print rejection report
14. Viewing of purchase Order details

B. DEMAND NOTES / RETURN NOTES

As a fundamental rule, no material is issued from the store without a proper

written authority. The document, which authorize and records the issue of material is
known as Material requisition or Demand notes. The generation, release and printing of
the demand notes are done mechanically and the posting is done through ON-LINE at

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the time of issue of the item by Stores. During these process the corresponding master
stock records get updated automatically.

Sometimes materials issued from stores may be in excess of quantity needed by the
department. The return of such materials to the stores is accompanied by a note known
as the materials Return notes. When the material returned to stores through return notes
is received by the store keeper and he makes the appropriate entry in the bin card and the
same information will also be posted through ON-LINE to update the corresponding
stock record in the computer.

C. NOMINAL ISSUE VOUCHER

1. Raise & print Nominal issue Voucher Requisition

2. Release & Print Nominal Issue Voucher
3. Posting of Nominal Issue Voucher
4. Modify Nominal Issue Voucher Requisition
5. Delete Nominal Issue Voucher Requisition
6. Inquire Nominal Issue Voucher
7. Printing of Certified Issue Voucher / Receipt Voucher
8. Posting of Nominal receipt Vouchers
9. Posting of Certified Issue Voucher / Receipt Voucher
10. Inquire on Nominal Receipt Voucher
11. Inquire on Certified Issue Voucher / Receipt Voucher
12. Inventory Analysis Report
13. Inventory Maintenance Report
14. Posting of I/Notes with CS Voucher details
15. Posting of CIV/CRV (other than Nominal Transactions)
16. Printing of Outstanding orders of a given party
17. Dues in (Complete or selected) list

A.B.C. TECHNIQUE AND SELECTIVE CONTROL

A.B.C analysis is being done on computer with the following objectives.

1. To keep the investment low
2. To avoid stocks outs of critical items.
We shall first see how the inventory can be reduced by the A.B.C technique. Items in
the inventory will be divided into three categories, on the basis of annual consumption
value.

A - Items will be of high value say Rs.10,000 and above

Approximately 10% in number but 70% of inventory value.

B - Items will be of medium value say Rs. 1000 to 10,000

approximately 10% in number but 20% of inventory value

C - Items will be of low value say below Rs. 1000 approximately 70%
in number but 10% of inventory value.

Purchase Orders are generated on computer by the user (Purchase Sections)

feeding the data on-line through the remote job entry terminals and hence the database
contains up to date Dues in information.

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 Based on the planning stock and the Daily Receipt information, material
authorisation is done by the system for the new requisitions as well as hold - up
requisitions. The database also monitors the actual drawal of any material from stores
against the above authorisation.

Data base accepts issue transactions, only if corresponding authorisation is

already existing. All issue transactions are planned to be fed through the remote
terminals located at various godowns in Stores

A number of reports on inter-related information could be generated because of

the database approach. Thus the functional executives can be equipped with current and
correct information needed for day to-day decision making to achieve the optimum
inventory.

The introduction of on-line inventory system enables to

♦ Generate Material Planning sheets indicating the consolidated requirements of
materials / components for various vehicles and its spares.

♦ Generate computer printed Tender Enquiries, Processing of Quotations, CST and

Purchase Order.

♦ Proper Planning of materials so that they are received in required time.

♦ Generation of M.I.Slips / Receipt vouchers

♦ Accounting of materials received from trade and issued to shops without any
delay.

♦ Generate computer printed accounting transaction documents and material

release to production shops and trade.

PRODUCTION PLANNING & CONTROL

The bill of material for the Tank is created in the hard disk and updated with the
modifications of alterations / engineering changes. This file is used for making various
types of management reports and production documents generation such as Demand
notes short list, Stock status list, material requirement planning etc.

The following are some of the important documents generated under this sub system.

1. Demand note generation

2. PPL Demand note generation

3. Labour Estimate and process sheet generation

4. Stock status Report

5. Ledger sheets

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 6. Semi statement

7. Short list.

MATERIAL RQUIREMENT PLANNING

The Material Planning Sheet is prepared with a view to help the material division
to take timely provisioning action depending upon the production progress for the year.
Whenever Tank Indents or Spares Indents are received procurement planning is reviewed
by exploding the material schedule with the production / spares programme and works
out the net requirement by taking into account the outstanding stock and Dues from the
respective files and the material clearance from P.C. The net requirement for the
specified period of Production and Spares is calculated mechanically and the material
planning sheet is printed by the Computer.

SPARES PLANNING AND CONTROL

The Army's four year master requirement file is maintained in the Hard Disk and
updated with Indents placed by Army for supply of Spares and issues being made from
time to time.

The Spares Indents for assemblies and components, which are manufactured at
HVF, require break down with bill of material to arrive at the requirement of Raw
material and bought out items. Such broken down items are taken along with loose
bought out spares requirement for material planning / procurement action. The entire
exercise is done mechanically on computer.
PERSONNEL MANAGEMENT AND PAY ROLL

The following are some of the important activities being done in the computer.

1. Pay bill for IEs/NIEs/NGOs and Officers

2. Income Tax reports

3. Overtime calculation

4. Grade / Trade wise list of IEs

5. Retirement / Superannuation Lists

6. Service Records details

7. Leave accounting

8. Details of transfer / awards etc

9. Retirement benefit reports

10. Increment sheet

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 11. Trade apprentices report.

FACTORY ACCOUNTS

The priced store ledger in AO, HVF, Avadi was computerised with effect from 1.4.76.
The following are done at the time of preparation of PSL.

1. Arriving of new average ledger rate with reference to receipt vouchers. If the new
rate varies by more than 20% an indication is made in PSL print out against the
receipt voucher.

2. Pricing of Issues, Demand notes and Return notes with reference to the rate
available on the date of transaction.

3. New balances will be struck and new master is created.

4. PSL showing the complete balance details of transactions Opening balance and
Closing balance is listed.

In the material abstract the abstract showing the work order wise and warrant wise
values of material is printed.

List of 'A' and 'B' category items with value up to 80% and 90% respectively are also
printed. Also the list showing the unorthodox balances held and list of rate variation
showing supply order number, Receipt voucher details, L.F. number and percentage of
variation is also printed.

The following are some of the reports generated under this sub system.

1. Priced Store Ledger (PSL)

2. Material Abstract
3. Issue priced store account
4. Receipt priced store account
5. Store account (Ledger serial wise balance)
6. List of non-moving and slow moving items
7. Analysis of A and B category
8. List of unorthodox balances
9. Rate variation list.

The introduction of such an on-line application in the important area of inventory

management / Purchase order / M.R.P and Production control etc. demands high co-
operation and discipline from the users which give benefits to the user himself and
tangible benefit to the organization.

PROCUREMENT OF CAPITAL ITEMS

CAPITAL

RR NC PROJ

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 RR - Renewable Replacement

NC - New Capital

Proj - Projects newly started.

I RR:

Every factory is established for specific production target initially for which
certain rated machining capacity created with a set of various plant and machinery
including transport and mechanical handling equipment's of capital nature. This rated
machining capacity need to be kept in tact until the specific rated production target is be
met. The plant and machinery under-go constant depreciation, depending upon their
usage over the years. Even though the rate of depreciation is not uniform for all the
machines all the times, for accounting purposes the rate is 5% on 20 years life span in 1
shift or 10% on 10 years life span for 2 shifts operation for conventional machines. Of
Board is also considering to modify this rate for CNC machines.

When certain plant & machines are outlived over the years, their output become
erratic or the machines go under frequent breakdowns. Preventive maintenance prolong
the life of reaction critical machines. Thus, even though all the machines are in-stalled at
one time, the same go beyond economical repairs departmentally at different years.
Thus, on technical examination of the condition of the machines, certain machines could
be found to be in different status. Some may require reconditioning through expert
outside agencies for extended life of utilization and some may need to be abandoned &
need to be replaced. Thus, the condition of the machines needs to be monitored by
production and maintenance departments & their opinions are examined by a Board of
Technical Officers constituted every year. Based on the findings of this Board, keeping in
view, the existence of original/production target to be retained, the production &
production control are to prepare a perspective plan of replacement require for the
outlived Plant & Machinery. Thus the necessity for RR is established.

II NEW CAPITAL:

When specific new items, than originally planned are to be manufactured for the
first time not covered in any project, certain new capital plant & machinery may be
essentially required to be installed.

Or over the years of production experience, certain specific improvements may be

needed in the production of existing items. Thus, the necessity for New Capital plant &
machinery.

As regards, New Capital P & M requirements, it is very much necessary to indicate

and furnish categorical justification against any one of the following criteria:-

a) To balance the existing capacity.

b) To increase the existing capacity in view of increased production.

c) For a new item of a production.

17
 d) Too reduce the manual labour (saving to be quantified & indicated).

e) To modernize the plant.

f) Required as a stand by to meet emergency in breakdown of specific plant.

III PROJECTS:

When a new item(s) of production required on a project scale in which a number

of plant & machinery as well as Capital equipment's and buildings and other
infrastructure facilities and services are required with a huge capital investment within a
existing factory or as a separate factory, requirements of such plant and machinery are
planned and brought out in detail in Draft Project Report (D.P.R) and the same when
approved and sanctioned by Ministry of Defence, procurement of such plant and
machinery become eligible. The ruling criteria for procurement would be strictly as
specified in D.P.R.

The above said is the basic concept guiding to decide the type of capital
procurement of P & M in general. The Ordnance Factory Board, controlling about 40
factories through out India, has laid down directives, guidelines, rules and regulations,
limitations uniformly keeping in view the production requirements, availability / paucity
of funds from time to time for factories to plan & execute procurement of capital
equipment's / P & M under the above categories. These directives / guidelines are to be
strictly followed while planning and projecting P & M demands, otherwise, the proposals
will not get approval & sanction and will stand rejected at various levels of processing.
Now, the object is to understand these procedures for those who are to initiate planning
& procurement of P & M.

I Renewable Replacement Demands:

1.1 The primary requisite is an existing machine should have been condemned as
beyond economical repairs after exploring all the possibilities for reconditioning
departmentally or through outside agencies. Very recently Of Board has observed
that certain machines condemned as BER many years back have been put into
continuous use even after such machines were replaced by new ones. This is
observed by Of Board as a matter of serious concern since the sanctity of
condemnation procedure is lost. Of Board is examining and necessary instructions
from OFB to curb such attitude of routine condemnati8on is expected very shortly. It
is now expected that all the user shops in consultation whit their respective
maintenance groups monitor and furnish physical condition of the machine(s)
proposed for condemnation, as regards condition major units, hydraulic
parts/mechanical parts/major structural parts, electrical/electronics parts,
accuracy/process capability achievable vis-à-vis requirement and overall condition of
the machine as to whether the machine could be reconditioned to obtain the desired
performance/accuracy economically, etc. in short, there shall be earnest efforts
before condemnation for the main objective of technical examinations of any
plant/machine to explore the possibility of economic repair/recondition/retro fitting
in order to avail optimum utilisation of the machine(s) without their routine
condemnation aiming at outright replacement(s).

18
1.2 Any Condemnation Board Proceedings for capital Plant & Machinery after approval
by GM is liable for close scrutiny by C of F&A (Fys) in line with OFB instructions
and accounting procedure and are to be concurred in.

1.3 Such cases of condemned P & M over the periods are to be compiled every year, in
the order of priority for replacements, keeping in view the consistency of production
targets for the future years.

1.4 Users shops when deciding the necessity of replacement to the condemned machines
have to keep in mind that normally like to like (capacitywise) replacements are only
permitted. However, where replacement proposed is not on like to like basis, users
have to bring out cost benefit for the same. The justification shall include quantified
reduction in labour estimate on account of short time cycles, savings in raw material
on account of reduction in unavoidable rejection percentages, savings in tools,
maintenance and reduction in down time due to superiority of design and
technological features of their proposed replacement for higher capacity.

When user shops desires to replace a conventional machine by a state of art

machine, like CNC machines, they have to consider the above aspects and indicate
ultimate reduction in cost of production. OFB expects that any additional capital
investments sought should accrue in less than 2 to 3 years. For this, users shops, shall
get budgetary offers from likely suppliers, including technological improvements
available from time to time.

1.5 The list of RR of P & M, thus worked out has to be put up to RR Plan Finalization
Committee, constituted every year, headed by GM and senior officers including C of
F & A (Fys) as a members. The consolidated list of P & M recommended by the
committee are only permitted for processing RR demands.

1.6 RR demands are to be raised by the respective user shops in consultation with the
Engineering Office as per OFB format (Appendix 'A') including replies to format of
RR demands questionnaire which are to be got approved and signed by GM.

While filling the RR demands as per latest instructions of OFB, every demand shall
be accompanied with a statement of "Cost Benefit Analysis" as narrated in para 1.4.
above.

1.7 The user demands for RR of P & M are examined by LAO (Fys) keeping in view the
merits of the necessity of individual cases, irrespective of the earlier approval of RR
plan by factory Level Plan Finalisation Committee. The vetting of the individual
demands by LAO (Fys) depends on RR funds allotted by OFB. User shops are bound
to reply any all queries raised by LAO (Fys) or AV/Fin while processing their RR
demands.

1.8 RR demands, on getting *vetted by LAO (Fys) are referred to Add. DGOF/AV for
approval, if the demand cost exceeds Rs. 1 Lakh. Addl. DGOF/AV refers such cases
to AV/Finance for their financial angle clearance.

1.9 On approval of RR demands, the cases are to be tendered out by Engineering Office
as per applicable mode of tendering as approved by TPC (Tender Purchase
Committee). Normally, 2 part-bid system is to be adopted while tendering. On

19
 opening of tenders, only technical bids of the various firms, responded are referred to
the user shops for their recommendations. All technical bids are to be examined and
commented for acceptance or otherwise and confirmed by user shops.

The technical recommendation of the individual cases are examined by factory level
TEC (Technical Evaluation Committee). If the cost aspects as earlier estimated need
the approval of AVHQ/OFB, the TEC minutes are to be sent for approval
accordingly. On directives of AVHQ/OFB, after their level of TEC, the price bids of
technically accepted offers are opened and put up to factory level Tender Purchase
Committee (TPC). Obviously as only the price bids of technically accepted offers are
opened, the cheapest of the price bids will be recommended by TPC factory level and
got to be endorsed by AVHQ/OFB level TPC as needed by their financial status.

2.0 After allotment of fund the supply order will be placed accordingly by Engineering
Office on authorization and perused with supplier for positioning the replacement.

2. NEW CAPITAL P & M

2.1 The concept of necessity for new plant & machinery over and above the created
machining capacity is outlined in the beginning itself under the same heading.
Since, every factory is installed with all requisite plant & machinery as envisaged
during establishing a factory for a specific target of production for particular output,
unless the rated output earlier planned changes or new product / a new operation is
to be introduced for a existing outturn, on account of technical production expertise
noticed or acquired over years of experience, the necessity for new capital
investment does not arise practically. Therefore, it may be well understood that it
will be very difficult to easily reason out a requirement / proposal for adding new P
&M

2.2 However, as the rare possibility NC requirements are not ruled out, OFB has
formulated a new capital demand format similar to RR demand, calling for specific
information which lead to justify such demand. Please refer (Appendix 'B'). it may
be seen that there are about 6 areas, upon any of which only the NC requirements
can be initiated. However, the information called for vide NC demand format, have
to be got approved by GM and these NC demand are to be processed in the same
manner with AVHQ/OFB since GM's powe4rs for procurement is limited to Rs. 1
lakh. In view of the fact that NC requirements are not to be raised as a routine for
obvious reasons, OFB allots only Rs.5 lakhs for each factory as annual ceiling.
Within this annual ceiling of Rs. 5 lakhs, every factory can raise their requirements,
subject to laid down justifications. Any further requirements are not permitted by
AVHQ/OFB/C O of F&A, unless specific necessity is approved by these higher
formation who are to sanction necessary funds for the same. It may be seen that the
NC demands are not to be anticipated and planned as in the case of RR plan.

2.3 However, in cases of absolute, established necessity with the personal knowledge of
the General Manager, NC demands are initiated. Even in such cases, the NC cases
can be processed through only after allotment of specific funds by OFB.

2.4 There may be instances, wherein, a Factory need to enhance its production targets
or add a new product in their production lines and specific orders of OFB/Ministry
of Defence. On such, instances, in view of the short falls in the existing/created

20
 machining capacity it may not be possible to undertake such works within the
existing P & M/Infra structure. These may involve, to induct a set of additional /
new P & M to the existing production lines. In such cases, the comprehensive
requirements are to be worked out by a committee to recommend additional P & M
which will be argumenting the existing capital P & M. for such cases, a package of
requirements with self contained statement of case has to be initiated and got
approved by AVHQ/OFB/M of D with the recommendation of C of F&A. these
requirements are also to be processed under new capital head once approval is given
and the funds are allotted by OFB/M of D.

3. PROJECTS:
When a specific target of a new category of production is to be started in an existing
Factory or in a new Factory. The procurement of capital P & M are categorized under
this head. When Vijayanta Tanks production was phased out and production Ajeya
Tanks were planned, T-72M project came into existence. Similarly, overhauling of Tanks,
in use by the services, are entrusted to HVF, the additional requirements of P & M over
and above the existing infrastructure sanctioned by M of D as recommended by OFB.
Similarly, one more new product, viz production of Arjun Tanks is in the offing for
getting manufactured at HVF. For this, a separate project wing is working out the
requirements.

3.1 for any project, the totality of requirements are compiled in Draft Project Report, in
addition to the O & M requirements, also plans and recommends other area like
building, manpower, services power etc. including cost of investments as well as
heads of expenditure.

3.2 A clue is given to the participants that wherever, any project is planned, there bound
to be certain shortfalls. Such shortfalls in earlier projects are to be brought out to the
notice of project officers, who plan subsequent projects so that, they may plan the
next project without such short-falls earlier experienced as well may accommodate
some of the unavoidable new capital P & M, presently being felt justified. The
difficulty of establishing new capital P & M can also be met in this manner, even
though it is not an healthy practice.
GUIDE FOR CAPACITY VERIFICATION, VENDOR GRADING, VENDOR
RATING AND REGISTRATION OF MANUFACTURERS FOR DEFENCE

INTRODUCTION

1. Capacity assessment of suppliers for manufacture and supply of Defence

Equipment's Components and Materials for Defence use is a vital step an assuring
quality and reliability. Considering defence end-use, storage, transportation and
maintenance / repair of equipment's under operational and climatic environments,
ever changing personnel to operate and maintain, a higher degree of product
reliability and detailed documents for defence hardware is an essential requirement.
This makes the task of Capacity Assessment and Registration more exacting than for
common civil users. Capacity / capability of the manufacturers, covering all
parameters of technology and management, is a vital aspect on which the quality of
product depends. Therefore, this task requires high degree of professional
competence and an institutionalized procedure for efficient management of the
subject.

21
2. Capacity assessment of a firm could be used to arrive at the following decisions:-

a) To select suppliers / vendors for development, indigenisation and bulk supply of

specific products of similar nature.

b) To develop new design/technology for indigenisation and Product Improvement.

c) To distribute the bulk requirement among various vendors when the purchase
price are comparable.

d) Whether or not to continue procurement from the registered vendors and de-
register the vendors, on an objective assessment of performance

3. The procedure as covered in this guide supersedes all previous instructions on the
subject within the scope of guidelines given in the document, detail instructions will
be issued by respective. Disciplines responsible for specific areas of technology,
design, production, quality assurance for management of capacity verification,
registration, grading, performance monitoring, rating and de-registration of vendors.

AUTHORITY

4. The following officers are delegated authorizes for various actions on the subject:-

a) Initial assessment and registration

1) Initiation - Tech. Director/Controller/Purchaser.

2) Assessment and - Controller with assistance of SQAO.

Recommendation.

3) Accepting Authority - Technical Director.

b) Review and Appeal against - Technical Director initial Registration

c) Vendor Rating

1) Assessment - Sr. Quality Assurance Officer

2) Recommendation - Controller

3) Accepting Authority - Technical Director

d) De-registration

1) Recommendation - Controller and Sr. Quality Assurance

Officer through controller

2) Approval - DGQA

e) Re-instatement of - Director General of Quality Assurance De-

registered firms.

22
SCOPE

5. This document is intended to give general guidelines for carrying out capacity
assessment of new vendors, grading them based on their assessed capabilities for
initial registration as likely suppliers. The document further lays down guidelines for
rating of vendors based on their recorded performance-both regarding quality,
delivery and other aspects of post procurement services. De-registration is covered in
this document to enable periodic updating with a view to keep the Compendium
adjective and effective.

EQUIPMENT AND TECHNOLOGY BACKGROUND

6. The task of manufacturer's capacity assessment subsequent actions requires in-depth

knowledge of the following aspects of product technology, professional capability on
infrastructure and Quality Systems:-

a) Quality of Design - Material, drawings, performance, reliability, design evaluation

reports.
b) Quality of Production Process-Production process, Process Documents,
Machinery and Control - Limitations.

c) Production Quality Control - Systematic quality checks - completeness, adequacy

and documentation.

d) Quality of Vendors and Vendor's Quality Control of his suppliers.

e) Quality of Material - Incoming raw material properties, systematic testing,

maintenance of records and treatment to rejected material.

f) Quality of End - Product - Evaluation of end product quality, systematic record,

treatment of un-acceptable products.

Disciplines should prepare specific guidelines for technologies and produce of their
responsibilities for providing comprehensive guidance and ensuring uniformity in
Vendor assessment and rating.

RELATED SPECIFICATIONS AND DOCUMENTS

7. a) IS - 14001 (ISO-9001) Quality System Model for Quality

Assurance in design / development, production, installation and servicing.

b) Guide for evaluation for Contractor's Quality Systems for

compliance with IS-14001.

DEFINITIONS

8. a) Vendor Capacity Report - The report containing information about

the nature of the organisation, details of the personnel, plant and
equipment, quality control facilities, nature of the products, licensed

23
 capacity for the products and financial status of the organisation as
submitted by the firm.

b) Vendor Grading - Vendor grading is the classification of vendors

based on their production potential and quality control facilities as
assessed during capacity verification of the firm.

c) Vendor Rating - Vendor rating is the system of rating of vendors

based on past performance regarding quality of supplies, deliveries and
experience.

d) Composite Rate - Composite Rating is the average of all ratings

for different products on the same vendor, which could be an index for
overall quality and performance.

e) Self Certification - Self - Certification is the status awarded to a

firm for quality assurance of its own product, through an approved quality
management system and quality of product. This status awarded to
Defence Suppliers improves quality, delivery and reduces Quality
assurance effort by the Purchaser.

f) Quality Systems - The Organizational structure, responsibilities,

procedures, processes and resources for implementing quality
management with demonstrated performance and documentation to meet
the quality objective.

g) Type Approval / Qualification Approval - Design scrutiny and

approval of a Product from a manufacturers established production as per
his design, production process, Quality Control to meet Defence
Specification of Quality and Reliability.

GENERAL

9. The overall procedure for vendor assessment and rating comprises the following:-
a. Assessment of new vendors.

b. Comparative rating of existing vendors.

c. Monitoring of Vendor performance.

d. De-Registration.

e. Self-Certification - Introduction to.

ASSESSMENT OF NEW VENDOR

10. Procedure - Whenever request for capacity assessment for registration is received by
any Discipline of DGQA Orgn, the firm will be asked to submit Pre-Qualification
information on a form as given at Appx 'A' Technical Director or Controller (s)
authorised to act on his behalf will scrutinize Pre-qualification information. If found
suitable, he will issue necessary instruction to the firm under intimation to the

24
 establishment selected for verification, for submission of infrastructure details as per
Appex 'B' along with requisite assessment fee to the establishment responsible for
carrying out physical verification. Necessary technical guidelines will be provided to
the establishment for advance preparation. On receipt of information, its scrutiny /
clarifications from the supplier, the capacity verification team will visit the firm to
verify correctness and adequacy of infrastructural data and to assess Quality Systems
as per details at Appx 'C'. After careful scrutiny of the details and Quality Systems
survey report, recommendation for registration will be forwarded to Technical
Director through the concerned / nominated AHSP / establishment for approval as
per Appx 'D'

11. Firms not fit for registration:

a) Traders & Sole Selling agents.

b) Sick units - as defined in the Sick Industrial Companies (Special provision 1985)

12. Categories for Registration - For development, production and supply, registration of
various categories of firms, capable of one or more types of activities is necessary.
The firms therefore will be registered under the following categories:

a) Design, Development and Production:

Firms who have design capability, developmental and R & D infrastructure and
also manufacturing capability covering all requirements of quality systems, would be
registered for all the three capabilities - (DDP)

b) Development and Production :

Firms capable of development and bulk manufacture only, would be registered for
development and manufacture of all items as per Defence Design. Such firms
obviously would not require design infrastructure, i.e. to convert a concept into
engineering design - (DP).

c) Production :

Firms capable of specified process such as machining, casting, fabrication,

assembly, for converting Defence Designs into hardware would be registered under
this category. Small scale firms engaged in indigenisation based on defence to
technology and design would be covered by this category - (p).

13. The above categorization will be identified through the following abbreviation as
applicable. 'SS/MS/LSP/DP/DDP' for example, a medium scale Industry, having all
the facilities with 'II' grading will be designated as M/s
(MS-DDP) Gr 'II'.

14. For the elements of quality systems covered in Appendix 'C' each element will carry
10 marks. Depending upon the type of the organisation, request and feasibility, the
attributes will be selected and marks allotted for the attributes covering areas of
design, development and process. Percentage of marks will also be worked out based
on total marks of the applicable elements of quality system.

25
15. Special Circumstances: The formal procedure for submitting Infrastructure details
may be modified by the Approving Authority in specific cases, for which necessary
instructions will be issued to all concerned. For example, in case of TELCO, BEML,
ECIL etc. it may be quite difficult and irrelevant to compile and collect all installed
machinery details, but Quality System for specific product can be recorded and
verified.

Special situation also arises where purchase agency advertises a tender and non -
registered firms offer quotations. The purchase agency, such as DGS & D, requires
capacity verification within the validity of offers, generally 90 days. For this
contingency, the firm may be asked by the purchase agency to submit Part - I and
Part - II Details of Appendix 'B' particularly highlighting capability for the product
offered to the SQAE of the area concerned. SQAE, without waiting for authorisation,
should visit the premises of the firm and complete capacity verification, including
assessment of quality system for the product concerned. One copy of this assessment
will be forwarded to AHSP and one to the Technical Director. On scrutiny of the
details and recommendations of SQAE, if necessary, after consulting the AHSP
concerned, the Technical Director will inform the purchase agency of his decision
regarding capacity / capability of such firms.

16. Priority and Time-Frame:

For all requests of capacity assessment, essential elements of the procedure to verify
infrastructure and Quality Systems will be followed. In case of contractual urgency, faster
communication will be resorted to and pre-qualification could be dispensed with.
Registration of the new firms will be completed, as far as possible, within 90 days after
receipt of infrastructual details and for contractual urgency this task would be completed
normally within 30 days, but in no case, this will exceed 45 days.

17. Registration with one Discipline valid for other:

Registration with on discipline will be valid for all disciplines of the organization for
similar stores or processes. However if a vendor already registered with one of the
disciplines of the DGOA, applies for registration with a different Directorate for new
products or processes, fresh details on infrastructure as per Appx 'B' will be called for
along with the requisite assessment fee. Further procedure to be followed will be in line
with the procedure given at Para 10 above.

FINANCIAL HEALTH OF VENDORS

18. While carrying out the Vendor Assessment of a firm apart from verification of
Technical Capacity / capability, it is imperative to judge the financial soundness of
the firm to invest and incur expenditure for initial development, raw materials and
various other inputs required for execution of supplies as per the stipulated deliver.
For this purpose, Company's Balance Sheet and Profit & Loss A/C for the last three
years will be obtained in addition to Annual Turn Over for the last three years. The
average turn over of the firm for the last three years will be taken as financial limit
upto which an order can be placed on a firm. Information on Turn Over and Profit &
Loss A/C will be updated every year while assessing VENDOR RATING.

GRADING OF NEW VENDORS

26
19. Newly assessed firms will be graded according to their production potential, quality
control organisation and facilities available with the firm. Based on the points
obtained by the firm in the assessment report, it will be given one of the following
gradings:-

Points Grading Remarks

a) 80% and more I } Fit for registration, should be

} considered for floating tender
enquires and placement of

b) with points 60% to 79% II } orders. Firms with Grade I may be

} given larger share of order
} compared to the firms graded II
when the order is split.

c) Less than 60% III Not fit for Defence Supplies, and
Not to be registered.

VALIDITY OF REGISTRATION AND EXTENSION

20. Registration charge : A uniform rate as Rs. 2500/- per applicant will be charged for
registration of large and medium scale firms. For small scale firms, the charge will be
Rs. 1000/- per applicant. No charge will be levied for renewal of registration or for
addition of an item of similar Technology. However, additional charges will be levied
from the firms seeking new registration for new Technology / Design.

21. Initial Registrations will be valid for a period of three years. A registration certificate
will be issued as per Appx 'F'. extension of registration will be considered and
approved on application.

COMMUNICATION TO THE SUPPLIERS

22. The firms will be informed of registration and awarded Registration Certificate clearly
indicating the products 9s)/ Process (s) for which the registration is effective.

23. Where the firm's capacity / capability shown deficiencies and it is not possible to
register them due to the deficiencies, the details regarding deficiencies may be given
as an advisory role by the Technical Directorate / AHSP / designated establishment,
without making commitment for registration, subject to making up such deficiencies.
Re-assessment, will normally be taken up after one year and payment of fresh charges
for initial registration.

RATING OF VENDORS

24. Vendors who are already registered and those newly registered should be given
vendor rating based on the actual performance against every supply order. The
vendor rating should be based on:

a) Quality of supplies

27
 b) Timely deliveries and

c) Any other factor which in the opinion of the procurement agency is important,
such as promptness in corresponde4nce, promptness in attending to rejections
and defects, including after sales service, co-operative attitude, etc. all these
factors could be collectively called 'Experience'. This rating should be made for
each vendor and for each type of supply.

25. The weightage for each of these attributes mentioned above may be as follows:
a) Quality Rating (QR) - 50

b) Delivery Rating (DR) - 30

c) Experience Rating (ER) - 20

QUALITY RATING

26. Quality Rating will be given to the vendor for every item / equipment being supplied
by the vendor during a specific period, normally one year. There is no absolute
Quality Rating for a vendor. It is always related to a particular item or a similar group
of items supplied during a particular period. Quality Rating is based on the Quality of
Supplies from the vendor in question as assessed during acceptance inspection. The
stores depending upon their nature and quantity offered at a time, may be accepted
either on the basis of 100% inspection or a by sampling inspection based on specified
AQL. The quality rating procedure for these two methods of inspection is explained
below.

STORES SUBJECTED TO 100% INSPECTION

27. For these stores, quality rating is determined by the ratio of stores accepted to the
stores submitted during a particular period (normally one year), modified by quality
weightage of stores accepted on concession or after rectification as given by the
formula given below:
N1+KN2=0.RNE
QR=
Ns
Where N1 is Quality of stores accepted as per specification on first submission.
N2 is Qty of stores accepted on concession
N3 is Qty of stores accepted after rectification
Ns is total Qty of stores submitted for inspection
K is the concession factor

Following values of 'K' are recommended"

K = 0.7 for stores accepted on concession of category D&E
K = 0.5 for stores accepted on concession of category C
K = 0.4 for stores accepted on concession of category B

28
 NOTE : For categories of concession B,C,D & E, refer Appendix 'E'

STORES SUBJECTED TO SAMPLING INSPECTION

28. For stores which are accepted on the basis of sampling inspection, the Quality Rating
(QR) can be worked out by using Quality Weighted Acceptance Ration System,
which is given as under:

N1 + 0.8N2 + 0.6N3 + 0.4N4

Quality Rating (QR) =
Ns
When N1 = Number of lots accepted on the basis of 1st sample.

N2 = Number of lots accepted on the basis of 2nd sample, under

double sampling plan.

N3 = Number of lots accepted on concession

N4 = Number of lots accepted after segregation / rectification.

Ns = Total number of lots submitted during the period (normally

one year).
In case, there is a wide variation in lot sizes, weighted lot numbers according to
the lot size may be in this formula.

DELIVERY RATING

29. Delivery Rating (DR) would take into consideration the actual time taken for
submission of an advance sample and the bulk supplies as compared to the
contracted period. For this, following formula may be used:

0.3Xcontracted period for 0.7X contracted period

advance sample for bulk supply
DR= +
Actual period taken for Actual period taken
Advance sample for bulk supply

(Replace 0.7 by 1, when advance sample is not applicable)

Where advance sample or the bulk is supplied within contracted period, the
supply period will be taken to be equal to contracted period.

EXPERIENCE RATING

30. Experience Rating (ER) will be determined taking into consideration the factors
mentioned in Para 24©. If vendor rating is carried out by the AHSP, the views of the
Zonal Quality Assurance Establishment will be taken into account while awarding
experience rating.

VENDOR RATING AND CLASSIFICATION OF VENDORS

29
31. Vendor rating score obtained by each vendor will be compiled as under:-

50(QR) + 30(DR) + 20(ER)

Vendor Rating (VR) =
100

32. Based on Vendor Rating score obtained by a vendor for each item or similar group of
items supplied by him, the vendor shall be classified as follows:-

Vendor Rating Score Classification of Vendor Remarks

Above 80% Very Good Should keep it up
65 to 80% Good Could improve it
50 to 64% Satisfactory Must be advised to
improve.
Less than 50% Unsatisfactory To be warned

33. It is desirable to inform the vendors about their rating, so that timely corrective action
can be taken by them. Where required, the vendors may seek advice from the
QAEs/Controllerates. Vendors awarded 'Unsatisfactory' rating should be given a
warning to improve within a specified period. If no improvement is noticed, de-
registration may be initiated.

COMPOSITE RATING (CR)

34. When a firm is concurrently supplying more than one type of stores against different
Defence orders, knowledge of vendor rating on individual order / item does not given
picture of firm's overall performance. It has, therefore, been decided that in such
cases, a composite rating will be computed by working out an average of rating of
each item without giving any weightage i.e. Composite Rating would consist of:-

VR1 + VR2 + VR3 - VRn

CR=
N
Where VRn stands for Vendor Rating for nth product

PROCEDURE FOR DATA PROCESSING

35. The data about inspection of stores and actual rate of delivery should be compiled by
the Controllerates on the form issued from time to time by Systems Development Co-
ordination Cell (SDCC) of DQAL.

MONITORING OF VENDOR PERFORMANCE.

36. The system of vendor rating and its periodic review provides for continuous
monitoring of the performance of the qualified vendors. This system is mainly based
on historical data. In actual practice, it is more important to forestall bad quality or
irregular deliveries. Any action taken after the receipt of sub-standard lots or delayed
deliveries in most of the instances, would be too late. The production lines of the
vendors shall therefore be continuously monitored. Regular communication shall be
established by SQAE/QAE with the vendor, so that timely corrective action can be
initiated whenever necessary. If during monitoring, it is found that the quality of

30
 items is suspect or the deliveries are going to be delayed, the SQAE/QAE shall
immediately inform all concerned so that timely advance action can be intimated to
forestall a crises.

DE-REGISTRATION

37. A firm, which has been registered, can also be de-registered, for various acts of
omission and commission. Before de-registration a 'Show Cause Notice' will be given
to the firm.

COMPENDIUM OF REGISTERED AND APPROVED FIRMS

38. Compendium of suppliers would be prepared in TWO Volumes as per details given
below:-
a) Vol. - Compendium of registered sources of …….. equipment's and ancillary
industries. This compendium will contain information under the following heads:

Section - A Alphabetical list of registered firms qualifying for Tender Enquiry

covering ……. Spares, tools and processes with specific details of types, range and
limitations. Generalized statements will be excluded while compiling the index.

Section - B - Product-wise Directory of Registered firms with cross reference to

firm covered under Section - A.

Section - C - Engineering process-wise directory of registered firms with cross

reference to the firms covered under Section-A.

b) Vol II-Compendium of approved sources for specific items after Qualification

Approval, as OE Supplier, items cleared for Rate Contract, and sources of
indigenised spares.

39. The details of Compendium lay out is at Appendix 'G'. The Compendium will be up-
dated through notification of the following:

a) Inclusion of new sources.

b) Approval of new product / sources through indigenisation Qualification Approval,

Rate Contract and OE approval.

c) Revision of grading / rating.

The details of notification to be issued every quarter i.e. Apr, Jul, Oct and Jan is at
Appendix 'H'

SELF - CERTIFICATION
40. Firm where quality systems are satisfactory and show consistently high level of rating
could be considered for Self-Certification status. The Controllers and Senior Quality
Assurance Officers will keep a constant watch on performance of the firms and
recommend consideration of suitable firms for undertaking assessment for Self-
Certification status. During their inter-action for registration, quality assessment of

31
their product and vendor rating exercise, the firms may be advised of the provisions of
Self-Certification and the benefits that may accrue to them. This is desirable with a
view to improve the quality systems, thereby their performance to achieve
consistently higher level of quality and effect economy in Quality Assurance efforts by
the organisation.

32
 APPENDIX'B'
(Refer to Para 10)

VENDOR CAPACITY REPORT

(To be filled bythe Manufacturers)

PART I - GENERAL

1. Name of the vendor :

2. Registered Office Address :

3. Factory Address :

4. Telegraphic Address :

5. Telex / FAX :

6. Telephone Numbers :
Office :
Factory :

7. Nature of business : Manufacturing / Sole Selling Agent /

Dealer / Trader / Project Engineer /
Agent / Assembler

8. Nature of the Company

(Attach Organisation Chart
/ responsibilities) : Proprietary / Partnership / Private
Limited / Public Limited / Ex-
Serviceman Unit

a) In case of Proprietary Co.,

Name, address and telephone
numbner of the proprietor :

b) In case of Partnership Co.,

Names and address of the
Partners, with telephone numbers
(Attach Partnership Deeds). :

c) In case of Public / Private

Limited Co., Name, address,
Occupation and telephone
numbers of the Chief Executive /
Board of Directors and
Managing Director.

(Attach copies of Articles of

Association and Memorandum

33
 of Association) :

9. Name of the siter organisations/

Subsidiaries with address in which
proprietor / partners or Directors
or their family members or relatives
have substantial interest :

(Substantial financial interest

has Same meaning as defined
in Sec 13 Explanation -3 of
Income Tax Act 1961).

10. Sub - contracto's address with

Telephone numbers :

11. Total area of the Factory :

Covered :
Uncovered :

12. a) Total number of employees on

date Administration :

Technical*

(1)* Total Number :

(2) Out of above, personnel

exclusively employed for
QC / Inspection :

(3) Skilled Labour :

(4) Unskilled Labour :

b) Are the minimum requirements of
experience and qualification laid
down for Production Manager and
Supervisory Staff? If so, give details :
c) Are the minimum requirements
of experience and qualification
laid down for Quality Control
Manager and Inspection Staff?
If so, give details. :

13. Type of Industry : Small Scale / Medium Scale / Large

Scale Industry.

34
a) In case of Small Scale Industry
Registration Number & Date with
the Director of Industries. :

b) In case of Medium Scale / Large

Scale Industry, Factory Number,
allotted by Directorate General of
Technical Development :

14. Year of Commencement of

production / manufacture :

15. Capital Outlay :

16. Name and address of Bankers :

INVENTORY CONTROL

First, we are to understand what is meant by "INVENTORY'?

The idle resources like the following are the inventory:

1. Raw Materials

2. Fuels & Lubricants

3. Spare Parts

4. Maintenance Consumables

5. Semi Finished Materials

(Work in progress items) etc.
It is highly uneconomical to keep the machines and men idle for want of any of the
above said items. Also, it is absolutely necessary to keep sufficient stock of inventory for
maintaining the production targets by which to achieve considerable profit for any
manufacturing unit.

At this instance, it is coming to everybody's mind - "Why at all inventory control is

essential?"

To keep excess inventory in stock means blocking the valuable money unnecessarily
without any use. Also, insufficient inventory will lead to production hold up. Hence to
reduce the gap between large inventory and insufficient inventory, the modern tool of
inventory control will play a leading role.

It has been practically found that by adopting the latest techniques of inventory
control, any manufacturing unit will certainly get high profit. Holding minimum
inventory and also to keep up uninterrupted production should be the main target of any
manufacturing unit. In these days, no manufacturing unit can survive by holding high
inventory since holding high inventory would only lead to heavy loss.

35
The following modern tools are available for inventory control:

1. Economic Order Quantity 9EOQ)

2. ABC Analysis

3. XYZ Analysis etc.

With the help of EOQ formula, it is fairly possible to work out a minimum
requirement of any inventory. The EOQ formula has been formulated by many experts
after a long study. The formula is as follows:

EOQ= 2AO A = Annual Demand

O = Ordering Cost
SC S= Unit Cost
C = Inventory Carrying Cost

EXAMPLE

LET ANNUAL REQUIREMENT = 5000Nos.

ORDER COST = Rs. 100/-
UNIT COST = Rs. 10/-
INVENTORY CARRYING COST = 20 PERCENT

2A0 2X5000X100 2X5000X100

HENCE EOQ = = =
SC 10X20 PERCENT 10X0.20

Therefore the number of items to be } = 707 Nos Say 750 Nos.

Ordered in one order }]

Hence total number of orders can be } = 5000 = 7 Orders

Placed per year }
750

Further, the ABC analysis is also playing a very leading role ion Inventory Control.
ABC Analysis is useful for controlling all raw materials, components etc.

ABC ANALYSIS

Any large manufacturing unit like HVF certainly to have 50,000 to 60,000 number
of items. It is really a huge number and it is impossible to keep the same type of control
for all the items. After many years of study, the experts invented ABC Analysis System.
They divided all the items into three categories called A item, B item and C item as
follows:

10% number of items : 70% money involved : A item

36
 20% number of items : 20% money involved : B item

70% number of items : 10% money involved : C item

Supposing a manufacturing units is holding a total number of 50,000 items then,

Approx. 5,000 items (10% of 50,000) will be 'A' item

Approx. 10,000 items (20% of 50,000) will be 'B' item

Approx. 35,000 items (70% of 50,000) will be 'C' item

For 'A' item, even though the number of items are less (when compared to the
total number of items) the total value of A category items is much more. Hence it is
essential to exercise proper control on procurement level, usage level for 'A' items which
will certainly yield high profitability. With the help of this analysis, many Industrial Units
can easily control inventory very effectively which will lead to high profitability.

XYZ ANALYSIS

This analysis is useful for the spares required for maintenance of machineries.

X Category : Vital items

Y Category : Essential items
Z Category : Desirable items
JIT

JIT means items required 'just in time'. Safety stocks, lead time etc., play a very
vital role in JIT.

Since the Ordnance Factories are engaged in the manufacture of a defence

requirement with highest quality and timely delivery of finished items to meet a war time
requirement, it was necessary to keep high inventory. However, in the recent years, it has
become necessary for the Ordnance Factories to hold minimum inventory by the use of
Inventory Control Systems. The computers are very useful for inventory control and
computer facilities are available in Ordnance Factories, hence it is certainly easy for the
Ordnance Factories for using the latest tools of Inventory Control for controlling
Inventory and to lead the Organization to profitable path.

IMPORT

69. PROCUREMENT OF IMPORTED STORES

Procurement of imported stores should be made, wherever possible, through the

Indian Agents of foreign manufacturers / suppliers, where there are no Indian agents or
direct arrangement with overseas sources is considered advisable for any other reason,
indents should be placed on DGSW, London/Washington. However, for purchases
outside the jurisdiction of these agencies and also for purchases upto Rs. 50,000/- in each
case for which indents are not entertained by these agencies, and the suppliers have no
local agents, direct arrangement with overseas suppliers becomes unavoidable. Apart

37
from these categories, there may also be special cases, specially for procurement of
specialized plant and machinery required either against a sanctioned project or for
replacement where dispensation for direct purchase is provided where direct purchase
from the foreign sources may be necessary.
69.1 Aspects requiring special consideration
Special consideration and arrangement is called for in respect of contracts with
overseas firms in the following areas:

I) Inspection & testing : Warranty

II) Shipping & handling at ports
III) Payment including that of Agency Commission
IV) Settlement of disputes.

69. 2 Inspection

Expect DGSW, London no other overseas Purchase Agency of the Govt. Of India
have any Inspection machinery. There is an inspection Unit in Japan, but no Purchasing
Agency. Therefore, if inspection at the suppliers/manufacturers end become
inescapable, special arrangement needs to be made at the Indentures/Purchaser's Cost.

Inspection of stores/equipment's against order placed on manufacturers or their

agents in India by DGSW, London, may be arranged only in the following cases:

I) Stores which have to be inspected/tested during manufacture and where

the inspection and test of raw materials used in manufacture are
considered essential.

II) Where the nature of store is such that full performance test and thorough
inspection has to be carried out at the makers works.

III) Stores in respect of which inspection by DGSW, London is considered

more economical than inspection in India.

Unless absolutely necessary on consideration of safety etc., inspection by DGSW,

London should not also be sought in respect of purchases where the contract value is
5000 pounds and less.
Where inspection at the makers end is not provider for, stores/ equipment's may
be accepted against Manufacturers inspection certificate and guarantee. In such
contracts suitable warranty clauses should be framed having regard to the end-use /
performance and invariably incorporated in the Contract with the agreement of the
suppliers.

69.3 Shipping and handling at Ports of Entry

The terms of delivery in a contract for imported stores for delivery direct to the
Purchaser may be:

a) F.O.B (Free on Board)

b) F.A.S (Free along side ship)
c) C.I.F (Cost Insurance & Freight)
d) C & F (Cost & Freight)

38
 When orders are placed on the basis of (c) and (d) above, the suppler will normally be
free to select the shipping line for despatch of the consignment. The position is the
reverse in case of F.O.B/F.A.S contracts. With a view to ensuring that the cargo is carried
by the Indian Shipping Lines, Contracts for direct imports should as a rule be made on
F.O.B basis and suitable provision made therein to the effect that Shipping arrangements
will be made by the Secretary, Shipping Co-ordination Committee, Ministry of Transport
and Shipping New Delhi through their forwarding agents (in position for the time being)
to whom prompt and adequate notice shall be given by the contractor about the
readiness of the cargo for shipment. Any departure from this standard shipping clause, if
unavoidable, should be made only consultation with Co-ordination Committee.

A specimen-shipping clause is reproduced below:

I) A specimen shipping will be made the shipping co-ordination and chartering

Division, Ministry of Shipping and Transport, New Delhi (Cable:
TRANSCHART: NEW DELHI TELEPHONE VAHAN-IN 2312, 24448 & 3104)
through their forwarding agents M/s Schenkar & Co. 2002, Hamburg-11, P.O. No.
110320. (CABLE: SCHENKERCO HAMBURG, TELEX : 0213094) to whom
adequate notice of not less than six weeks about the readiness of Cargo for
shipment should be given by the Sellers from time to time for finalizing the
shipping arrangements.

II) The Bills of Lading should be drawn so as to Show:

SHIPPERS : THE GOVERNMENT OF INDAI

CONSIGNEE : The General Manager,
GCF, Jabalpur
C/o Embarkation Commandant,
Embaraktion Hqrs.
P.B. No.331, Bombay.

III) Two non-negotiable copies of the Bills of Leading indicating the gross freight
amount and rebate allowed, should be forwarded to the shipping C-ordination
Officer, Ministry of Shipping and Transport, New Delhi after the shipment of
each consignment is effected.

IV) The stores being of security nature, should be despatched by Lock Fast Cargo, if
this type of stores on board is available and provided no extra expenditure is
incurred. However, the despatch of stores need not be held up for want of this
facility.

V) To be shipped on Indian Vessels only.

Or

To be shipped by Indian Vessels. Failing that by non-Pakistani Vessels which are

NOT manned by Pakistani Crew.

Embarkation Commandant of the are in which the port of entry in India is

located, arranges clearing, handling and transshipment of imported consignment from

39
the port to the ultimate consignee. Shipping advise shall be sent to the port consignee i.e.
the concerned Embarkation Commandant by telegram or air-mail within 3 days of
shipment.

Transmission of the following documents to him required for clearance of

consignments at the Indian port should also be ensured well before the arrival of the ship
at the port.

a) Original copy of the Bill Lading.

b) Copy of the Bill Lading showing ocean freight charges, freight sheets.

c) Invoices of the supplier.

d) Fully itemized packing lists showing individual dimension and weight of the
packages.

e) Insurance reports (if consignments were insured.)

f) Country of origin certificate.

g) Drawing of Sketches (to plan) showing outside dimensions for all oversized
packages, if any (so that further movement from port may be planned before
arrival of the consignments).

69.4 Packing

Stores/equipment's supplied from overseas sources shall be packed in sea worth

packing to avoid any transshipment loss/damage and tropical storage. Clean-on-board
bills of Lading only will be accepted as a proof of out-wardly seaworthiness of packing.

69.5 Marine Insurance

Ordinarily Govt. Goods are not insured as a matter of Policy. However, where
marine insurance cover is considered essential for any special reason and the supplier is
not agreeable to bear the cost, necessary arrangement may be made with the concurrence
of Finance. The policy should, however, be taken with the concerned nationalized
insurance co.

69.6 Payment & Agency Commission

In the past even in the direct purchase orders placed on European suppliers
C.A.O High Commission of India, London used to be shown, subject to the suppliers
agreement, as the paying authority. With effect from 01.09.81, however, C.A.O has
discontinued this function and as a result the general practice now is to arrange payment
to the foreign suppliers through irrevocable letters of credit.

The actual mechanics of opening a letter of credit are as follows:

The concerned authority in OFB/ the concerned Factory makes an application

duly supported by (1) a guarantee in form No. 2 (ii) a copy of the relevant contract with

40
amendment, if any and (iii) connected sanctions (foreign exchange etc) And attested
copies of relevant notes and correspondence. On receipt of these documents the
Accounting Authority (C of A/Fys. Or branch A. Os), after necessary scrutiny/audit
forwards the application together with the guarantee form to the Reserve Bank of India
(with whom the relationship has been established in case of Fys.) An undertaking as
under is also required to be given to R.B.I while sponsoring such cases:

'You are authorised to make payment on receipt of the draft and documents under
credit and also relative incidental charges by debit to Controller of Accounts (Fys.),
Calcutta, irrespective of any admissibility of claims on grounds of defective documents or
good covered by the credit.'

The forwarding letter and undertaking will be signed "for Controller of Accounts
(Fys.)" by an officer whose specimen signature is on record with the R.B.I.

The R.B.I then advises the S.B.I etc. to have a letter of credit established with the
Foreign Bank (Supplier Banker) Specified on the contract or as mutually agreed between
the Supplier and the Purchaser.

The Foreign Bank makes payment to the supplier on presentation of prescribed

documents and claims the amount from the SBI etc. who in their turn gets re-imbursed
by the RBI who then sends debit advice to the Accounts Officer.

(C of a/Fys Circular No. S/1/019,dt 18.06.81)

The controller of Accounts (Fys.) has requested under his u/o No. S/1/019
dt.30.11.81 that the following instructions should be incorporated in the contracts
providing for payment by letter of credit:

"As soon as a consignment is ready for shipment a a copy of your invoice and
inspection note relating there to shall be mailed directly to Group Officer I/G, Store Sec,
Office of the C of A (Fys.) 9, Chittaranjan Avenue, Calcutta - 700 072".

While claiming payment from the Bankers you will furnish additionally one more
copy of your invoice and the bill of lading marked specifically as follows:-

Copy meant for Officer I/C, Store Section, Office of the C to A (Fys.) 9,C.R.
Avenue, Calcutta - 700 072.

It has since been decided (vice Finance Division u/o No. 973/IV/OF dt. 27-08-
81) that letters of credit may opened, through the Indian Overseas Bank and the Bank of
India in addition to SBI so that there may be some flexibility in choosing one or the other
depending on the prevalent service conditions at each of them.

The documents on the presentation of which payment through letter of credit will be
released shall be clearly laid down in the contract. Normally these should be (in requisite
numbers):-

a) Clean-On-Board bill of lading

b) Invoice
c) Chipping Specification

41
 d) Certificate of inspection
e) Packing list
f) Contractor's declaration of Origin of the goods.

69.7 Agency Commission

When foreign manufacture/supplier have Indian Agents, they generally quote

gross F.O price inclusive of agency commission payable to their Indian Agents. Care
should be taken ensure that agency commission is paid in rupee currency and foreign
exchange payment restricted to net F.O.B price only. In calculating the F.E requirement,
however, the amount to short be taken into account as per the following illustration:

Gross F.O.B. price ………………………………………………Rs. 100

Agency Commission …………………………………………… 10%
F.E. Requirement
Net F.O.B price ………….……………………………………… Rs. 100.00 = Rs.90
Addl. Sea freight, say 10% ………..……………………………Rs.9
Addl. Agency Commission …………………..…………………Rs. 100
………………………………………………
Total F.E requirement ……………………………………………Rs. 109
………………………………………………………………..

Rate of Agency Commission

The Maximum limit of agency commission admissible to Indian agents is as

under:

Where gross F.O.B. value is-

Upto Rs. 5 Lakhs ……………………………………………… 10%

Above Rs.5 Lakhs but upto Rs. 10 Lakhs ...………………… 7%
Above Rs.100 Lakhs but upto Rs.25 Lakhs ………………… 5%
Over Rs. 25% Lakhs …………………………………………… 2%

In addition, where the commission payable in absolute terms does not exceed
Rs.1000/- it may be accepted provided it does not exceed 20%

Where the above limits are exceeded, the case shall be referred to the next higher
authority (Fy. OFB-Ministry)

69.8 Settlement of Disputes

Having regard to legal complications, cost involved in litigation and difficulties in

endorsing legal awards, all efforts have to be made to settle disputes with overseas
contractors by negotiation specially in case of small value contracts.

The sole-arbitration clause as laid down in the general conditions of contract are
not accepted by the foreign firms. As an alternative, provision may be made, where
necessary, for arbitration by the three arbitration's, one each nominated by the Purchaser
and Supplier and the third, who should not normally be a native of either India or the

42
contractor's country chosen by these two arbitrators. In case of disagreement between
the two arbitrators, the third arbitrator may be left to be nominated by the Chairman of
Internati0onal Chamber Commerce, Paris or similar prima facie neutral and reputed
institutions.

Purchase Contracts with Foreign firms should preferably be in the form of self-
contained Agreements, specially for large value contracts or these for costly plant and
machinery which involves elaborate erection & commissioning, trying out of
capacity/quality/Consumption rate/twice cycles warranty period etc.

A large number of contracts including Collaboration Agreements have been

concluded by DGOF/OFB/Min. Of Defence in the past. Some of them are quoted in the
annexure B to para 67….. in Chapter VIII which may provide guidance in the matter of
details of wording and format of further contracts.

41.6 CARRIAGE BY SEA.

The contract to carry goods by Sea is a contract for affreightment.

Carriage of goods by Sea from any part of India to any other parts in or outside is
governed by Carriage of goods by Sea Act of 1925 which is based on the
recommendations of the international conference of Maritime Law which aimed at
securing uniformly of laws as regards the rights and liabilities of carriers by Sea and rules
regarding bills of lading.

The Merchant Shipping Act of 1958 was passed with the object amending or
consolidating the Indian law relating to Merchant shipping.

Contract of carriage of goods by sea is evidenced by Bill of Lading which is the

receipt for good delivered to a ship for marine carriage. The bill of Lading is also
acknowledgement of goods from the carrier and a document of title to the goods. The
normal duties and liabilities of a carrier by sea are summed up below:-

I) The carrier shall be bound, before and at the beginning of the voyage, to exercise
due diligence to (a) make the ship sea-worthy and (b) properly man, equip and
supply the ship and (c) make the holds and all other parts and facilities in the ship
in which goods are carried fic and safe for their storage and preservation.

II) The carrier shall properly and carefully load, handle slow, carry, keep care for and
discharge the goods carried.

The carrier is not responsible for loss damage arising from the following causes:-

(a) Neglect or default or the servants of the carrier in the navigation and
management for the ship, file, unless caused by fault or the privity of the carrier.

(b) Perils, dangers and accidents of sea or other navigable waters.

(c) Act of God,

(d) Act of War.

43
 (e) Act of Public enemies

(f) Seizure under legal process,

(g) Quarantine restrictions,

(h) Acts or omission of the shipper or his agents and

(i) Striker or lockouts, riots or civil commitions, saving or attempting to save life
property at sea, inherent defect in the goods, insufficiency in packing,
inadequacy in making etc.

The carrier is not responsible for any loss or damage of goods exceeding 100 or its
equivalent unless the nature and value of such goods have been declared by the shipper
and inserted in Bill of Lading.

The carrier and shipper shall be discharged from all liabilities for loss or damage
unless a suit is brought within one year of the delivery of the goods or the date when the
goods should have been delivered.

41.6.1 CERTAIN TERMS RELEVANT TO CARRIAGE BY SEA

(a) BILL OF LADING:

Clean Bill or Lading - When it is stated in the Bill of Lading that all the goods are in
good order and condition, the bills is said to be a Clean Bill of Lading. When a clean bill
of lading has been issued, the ship-owner is estopped from claiming later on that the
goods were in a bad condition.

(b) DEMURRAGE:

If loading and unloading not completed within the period agreed upon, the carrier is
entitled to damages. Such damages are called Demurrage. Demurrage is calculated upon
the number of days the ship is detained beyond the agree period. Railways in India
charge demurrage is the goods are not loaded or unloaded within the time mentioned in
the Railway Receipt.

(c) GENERAL AVERAGE LOSS:

When the goods are thrown overheard or destroyed in order to save the ship or
protect venture undertaken, the resultant loss in called General Average Loss. The loss of
the owner of goods in such a case must be compensated by contribution by other cargo
owners.

(d) FOB CONTRACT ;

In means Free on Board of a Ship. Under these terms the supplier (s) liability comes
to an end except for transit loss or damage which may be proved to be due to improper or
inadequate packing.

44
(e) C.I.F. CONTRACT :

It means costs, insurance and freight contract. CIF contract is one in which the seller
agree to sail the goods to be carried by sea at a price which will cover cost of the goods,
insurance and freight charges.

41.7 CARRIAGE BY AIR;

The law relating to carriage by Air in India is laid down in "The Carriage by Air
Act, 1972". This Act provides that certain documents are to be issued when goods and
passengers are carried by air.

41.7.1 AIR CONSIGNMENT NOTE OR AIR WAY BILL:

For all Air Consignments three copies of a note or Air way bill containing the
following particulars shall be made:

The place and date of issue: the place of departure, destination and stoppages; the
name and address of carrier, consignor and the consignee; nature of gods, number of
packages, the nature of packing, their weight, quantity, volume and dimensions and the
apparent condition of the goods; the amount of freight and the person(s) liable to pay it;
the period of the carriage and the route; the conditions that the carriage is subject to the
rules contained in the Act.

The Note/Way bill is issued in triplicate. One copy is kept by the carrier,; another
signed by both the carrier and the consignor accompanies the cargo; the third is given to
the consignor.
"The Air Way bill is prima facie evidence of the conclusion of contract, of the
receipt of the cargo and of the condition of carriage".

The consignee is entitled to take delivery of the goods at the place of destination.
If the goods are lost or do not arrive at the place of destination within seven days of the
date of delivery, he can enforce his rights under the contract of carriage.

45
 INTRODUCTION TO STORES:

1. RAW MATERIALS STORES

2. PRODUCTION ITEMS STORES
3. GENERAL STORES
4. TOOLS STORE
5. SOLVAGE STORES
6. PACKING STORES
7. SPARE PARTS STORES
8. RECEIPT STORES
9. FINISHED GOODS
10. WORK IN PROGRESS STORES
11. STATIONARY STORES
12. BONDED STORES (CUSTOMS/EXCISE NOT PAID)
13. SCRAP/OBSOLETE STORES
14. ISSUE STORES
15. STORE OFFICE
Store keeping relates to safe custody and preservation of the materials stocked in
the store.
The task of the stores is:

1. To provide what is required?

2. To provide when is required?
3. The condition in which it is required?

And all the above things efficiently and economically.

Store keeping adds noting to the value of a product. It is a cost with no return,
hence the importance economic operation keeping efficiency at a desired level.
CAPITAL EXPENDITURE IN STORES DEPARTMENT:

1) LAND 2) BUILDING 3) ROAD 4) YARDS 5) MATERIAL HANDLING

EQUIPMENTS 6) MACHINERY & OTHER FACILITIES.
REVENUE EXPENDITURES:
1) Salary to the employees of the store 2) Maintenance cost 3) Stationary 4)
Communication expenditures 5) Cost of maintain the inventory at an average low
level.

Through it adds nothing to the value of the product, store keeping is an essential
function in any organisation. Stores is just an overhead for any organisation.

46
 STORES FUNCTION:

I. To make available a balanced flow of raw materials, components, tools,

equipments and other misc, components, which are absolute necessary to
meet operational requirements.
II. To provide maintenance materials, spare parts and general stores as
required.
III. To receive & issue of WIP & finished components.
IV. To accept and store scrap and other discarded materials and arrange for
proper disposal
V. To keep the stores area in a tidy and neat way.

RESPONSIBILITY OF STORES FUNCTIONS:

1. Identification
2. Receipt
3. Inspection
4. Storage & Preservation
5. Material Handling
6. Packing
7. Issue & Disposal
8. Stock records
9. Stores accounting
10. Stock control

RESPONSIBILITY OF STORES PERSONALS:

RECEIPT:

1. Receive incoming goods

2. Asst Unloading
3. Count tally
4. Check for damage/shortage & prepare report
5. Enter in goods inward register & Prepare goods inward slip
6. Complete vender's consignment note (challan)
7. Arrange for inspection
8. Prepare receipt voucher
9. Prepare goods rejection note
10. Send goods to respective stock godowns

Further:

(1) Ensure house keeping is OK i.e checking for spillage oils, dirty walls and any
obstacles.
(2) Check all the material handling equipment are OK.
(3) Report an accidents and dangerous occurrences (if any) and fill accident
register and arrange for immediate medical treatment as early as possible

(4) Report to management utilisation factors, idle time working etc.

47
 (5) Ensure FIFO system.
STORES RECEIPT, ISSUES, STORES OFFICE PROCEEDURES

Ordinance Factories are manufacturing from a pin to a Tank. Effective store

keeping is playing a vital role in manufacturing store in the Ordinance Factories.
Desired degree of service at minimum ultimate cost can be made available to the
production/service shop by effective control of stores (known as inventory control)
taking following points into the consideration.
1. Systematic location
2. Storage
3. Recording
Main record of stores in stores section is maintained through bin cards. Another
record is maintained jointly by provision section and accounts are known as STORE-
CUM-PROVISION LEADGER.
According to the various functions involved, main stores is divided into the following
units.
1. Receipt Group
2. Stock
3. Issue

FUNCTION OF RECEIPT GROUP:

The receipt group as responsibly to receive a materials intended for the factory
against proper authority such as Firms Challan, Invoice, Railway Receipt (RR), Issue
Voucher, Registered Post Parcel, Value payable post (VPP) etc. Counting, measuring or
weighing, as the case may be by this group carefully checks up the stores on receipt. On
receipt of material, MIS (Material Inward Slip) are prepared in five copies within 24 hours
whch are forwarded to WI (Works Inspection) along with stores for inspection to
specification and quality as stipulated in the supply order.
On receipt back of MIS from WI after inspection (if the full quantity is accepted)
receipt voucher number is to be allotted on MIS sent to stock for taking material on Bin
cards i.e stock charge). The receipt Data processing section/provision section. If there is
any rejection on the MIS after inspection, Discrepancy report (DR) should be raised on
the consignor factory in the Form No. IAFZ 3045 within one month from the date of
receipt off consignment. This reports (DR) are prepared in six copies-two copies for
consignor factory/dept one copy for consignor's A.O., one copy for L.A.O., one copy for
local planning office and the rest for office records.
Material in dispute will only be returned at the consignor's specific
request/agreement, in the absence of such agreement it will be retained by the
consignee. It will be used if useable; otherwise it is to be disposed in the usual manner.
AUTHORITY FOR ACCEPTING MATERIAL:
All materials are to be accepted based on:-
i) Local purchase ii) Central Purchase iii) Foreign Purchase iv) Cash Purchase v)
One time buy (OTB) vi) Indent etc.

48
PLACES OF COLLECTION:
Collection of stores made by Receipt Group Generally from
a) Local items against supply order
b) Ordnance Dept/A.S.C (Army Supply against demand/indent
c) Sister Ordnance Fys against I.F.D
d) Govt. store Govt. stationary office against demand/Indent
e) Railway Yard/Godown/Station
f) Embarkation Hqrs incase of stores shipped by foreign supplier

MI slips are prepared in five copies, the distribution of which is as following:-

a) One copy for office record b) One copy for record in WI c) Two copies for
accounts office d) One copy for Bill section for payment.

The following service of receipt voucher is allotted to MID after inspection depending
upon categories of stores. Henceforth the M.I slip will be renamed as receipt voucher.

'S' denotes serviceable items

'M' denotes machinery items
'R' denotes reserve stock
'N' denotes nominal transactions.

REGISTERS MAINTAINED:
For proper functioning of the following registers is maintained in the receipt Branch.
i) RR/PWB (parcel way bill)register.
ii) Wagon register
iii) Central record for incoming stores
iv) Discrepancy registers
v) Claim register
vi) Receipt voucher/guard file
vii) Dak book for incoming & out going papers.

STOP PAYMENT: Payment to supplier on the spot can be made only after inspection
and acceptance of stores by the authorised inspection.

ONE TIME BUY: The stores of non-recurring nature are purchased as one time buy.
These stores procured against transit ledger should not be taken on stock charge.

PROCEDURE OF CLAIM TO RAILWAYS:

As for DGOF' instruction the following procedures are adopted in claiming

compensation in case of consignment booked under the PWB/RR by the firms/factories
etc.

a) Notice of inform for all claims should be served to Rlys (Chief commercial
Spndt/G.M) copy endorsing to the consignor in case of non arrival of stores
within 30 days from the date of booking.

b) Formal claim (Monetary claim) should be made with 90 days from the date of
booking in case of non-arrival of the consignment.

49
 c) No claim shall be entertained by Rlys., if the claimant fails to submit his claim
within 6 months from the date of booking.

d) No claim can be made from the Rlys., if the value of the lost stores does not
exceed Rs.25/-

e) If any packet/case/drum is found in damaged, broken or in doubtful condition at

the time of collection of the same the consignee should issue a memo to the
station Master to issue a "Short Certificate" if the quantity is found short on joint
survey.

f) Reports of damage/shortage of store after opening of the case should be

intimated to the consignor within 30 days from the date of receipt of stores.

g) On the basis of "Short Certificate" consignee factory should serve on informal

notice of claim and after receiving the assumed value received from L.A.O in
respect of monitory claim bill would be settle.

h) Ledger should be maintained by trained staff, who is well aware of the financial
aspects of the transaction for which the ledgers are kept.
Inventory of stores
a) Annual Inventory through stack verification group is normally being carried out
once in a year between 1st April to 31st march and SV sheets are being prepared to
this effect for valuation.
b) Perpetual inventory of stores-whenever any receipt or issue is made the BCB (Bin
card balance) after positives reflected on the documents to cross check the qty
available after that posting. This will be called perpetual inventory i.e. to reflect
the stock at any item after every transaction.
c) Departmental verification by senior staff.

d) Surprise check of any item by orderly Officer/Manager/GM or any one deputed

by them.

e) Inventory is the means of verification of physical stock and Inventory control is

the means of regulating the stocks in terms of value and to control the cost so as
to re-cycle the money as many times as possible during the financial year to avoid
idle capital/dead capital.

Inventory Control Methods:

i) EOQ (Economic ordering quantity) to avoid overstocking/idle capital.

ii) Phased supplies to spread over certain period to avoid overstocking/idle
capital and to conserve storage space.
iii) Control charts by the respective material control/production control
Department to picture out the correct position of stocks/dues in with dates.
iv) Release of correct qty of material for each job against each work order and
warranty.

50
Costing:

Costing is one part of stores accounting so far as the production items are
concerned. For this purpose the ledger called "Priced Production Ledger" is employed
with the help of cost cards. Cost cards will show the materials used and the labour used.
Besides material cost. Labour cost over head charges like fixed overhead and variable
overheads are also charged to make up or arrive at the cost of the product i.e item
produced at the Factory.

DISPOSAL:

Disposal is also a part of stores accounting.

Disposal shall be as under:-

a) Disposal of surplus and products at premiums (Discount sale)

b) Disposal of raw materials used as well as unused to avoid over stocking / idle
capital

c) Disposal of scrap by open tender or public action periodically

d) Disposal of material to sister units as stop gap arrangements only to re-call at any
time as the need arrives.

e) Disposal of products at concession to employees as incentive

f) Retrieval of useful parts or salvage of useful parts that could be re-used and the
balance may be disposed of by any one of the methods stated above.

CODING OF UNITS

UNIT CODE NO UNIT CODE NO

MILLIMETER 01 PAIR 41
CENTIMETER 02 DOZEN 42
DECIMETER 03 GROSS 43
METER 04 SHEET 50
SQ-MILLIMETER 11 QUIRE 51
SQ-DECIMETER 13 REAM (50Pcs) 52
SQ-METER 14 BOTTLE 60
SQ-CENTIMETER 12 PACKET 61
CU-MILLIMETER 21 BAG 62
CU- 22 TIN 63
CENTIMETER

51
CU-METER 24 BOX 64
CU-DECIMETER 23 CARTON 65
LITRE 25 SKEIN(Qty of Yarn) 70
HECTO LITRE 27 REEL 71
CENTIGRAM 32 ROLL 72
GRAM 34 CALORIE 73
DECIGRAM 35 MEASURE 75
HECTOGRAM 36 BAR 77
KILOGRAM 37 SET 78
METRIC TONNE 38 LOT 79
NUMBER 40 WHOLE JOB 80

DISPOSAL OF STORES

Disposal of stores is a complex job by itself. The purpose behind the concept
being to retrieve as much money (value) as possible for the surplus stores to the best
advantage of the state and at the same follow the norms stipulated by the state for such
disposal.
Detailed instructions to be followed by all concerned in case of disposal of
samples stores are contained in circular 212/MM dated 15th June 1981 of DGOF, 6
Esplanade East Calcutta-700 069. However guideline for information of the dealing
assistance the following may be noted and action taken as per the DGOF Circular of 15-
06-81 cited above.
CAUSES FOR THE STORES BEING DECLARED SURPLUS

A) Over Provisioning of stores and non-moving of stores.

B) Slow drawal of stores by the user shops
C) Stores held in stock beyond shelf life
D) Stores being declared obsolete due to revision of drawings/functions etc
E) Cut in the production programme
F) Accommodation of stores, especially the scrap materials which are the by
products of the production programme.
G) Inability of the Factory/Unit to utilise the existing stocks.
H) Replacement of worn out machinery stores.

WAYS AND MEANS OF DISPOSAL OF SURPLUS STORES

I) By mutual add-In such cases, circulars of surplus stores with all details to
all the Factories and priority indentures as listed in the DGOF circulars

52
 II) By public action through an approved/authorised Govt. auctioneer at site

III) By calling open Tender by advertising in local dailies

IV) By negotiated limited sales agreement with known parties.

V) Through DGS & D and through the local DGS & D offices located near the
Factory / Unit in case of capital items and high value items beyond the
value Rs. 10,000/-

VI) Destroying by burning, such of those classified and Top secret stores, but
under the direct supervision of a board of officers approved/appointed by
the state.

CLASSIFICATION OF SURPLUS/DISPOSAL

1. Standard stores that could be used by all. For e.g. M.S plates/Sheets/Bars.
Blooms. Billets. Mild structural materials like MS Angles. Channels. I-beams etc.
Special steel materials stainless steel bronze, Brass and Aluminum Materials.

2. Standard machine Tools like Lathe Milling, Broaching, Drilling, Center less
Grinder and Tool Grinder etc.

3. Standard misc. items like Ele, bulbs, cables, cloth, unused Timber, oils, paints,
cement etc of consumable nature.

4. Special stores such of the stores procured specifically against specific production
requirements which are peculiar only to such production job and which cannot be
used by others. This can also be said as non-standard items the usage of which is
restricted to certain productions only.

5. Scrap materials like steel turnings and borings. MM scrap, HM Alloy scrap (steel),
Brass, Bronze, Aluminum, Misc, Scrap used oils, used Timber., used barrels,
Jerricans etc

6. By general condition of stores such as:

a) Serviceable b) Repairable c) Unusable d) Doubtful

FIXING OF THE PRICE FOR DISPOSAL

Normally while fixing the reserve price for the auction for negotiated sales. Sales
to priority indenters, the last auction price shall be taken in to consideration. Also the
book value of the items shall be taken in to consideration. The GMs of Factories in
liaison with the local Accounts officers can fix the price for such stores subject to the
limitations specified in DGOF's circulars from time to time. In case of dispute between
the GM and the Accts. In fixing of the prices. The matter shall be preferred to DGOF.

53
STORE KEEPING

a) Basic documents involved in stores Accounting are:-

i) MIS/Inspection Report/Receipt voucher for items received through bonds
receipts
ii) Return Notes from shops
iii) Inspection report for HVF Factory manufactured items.
iv) Issue Vouchers.
v) Demand Notes
vi) CIVs/CRVs

b) The Bin cards will contain the LF No, Nomenclature. Accounting Unit, Location,
Minimum Level, Danger level & Maximum levels as well ato guide the material
division of the inventory control. Min level, danger level and maximum levels will
be given by the respective material divisions for endorsement on the Bin card.

c) Basically the stores are classified and codified into convenient groups blocks for
accounting purposes.

d) Once the stores are received, they are binned and Vrs cleared to all concerned
with the "Bin card Balance" after that posting.

e) Care and custody of stores in also part of store keeping. Hence periodical
preservatives, turnover, issue of first in first out is also part of this duty.

f) Bulk-handling of stores

Where there is bulk of stores involved a percentage 10% or 20% will be physically
verified for Qty/Quality and on the basis of test certificate/1. Note, the data obtained on
the percentage check will be utilised to clear the bulk of stores while under receipt or
under issue.

B) LEDGER KEEPING

a) Basic documents involved in ledger keeping are:-

i) The receipt voucher
ii) The supply order
iii) Return notes
iv) Inspection notes
v) Issue voucher
vi) Demand notes
vii) CIVs / CRVs
viii) Transfer vouchers

b) Ledger sheet which will contain Nomenclature, LF No, A/C code, Qty, Unit cost,
Total value, source of receipt, to whom issued, work order No, warrant No etc and
the balance at any one time in qty and value.

c) Ledger sheet is the basic record from which the value is taken and the balance
sheet, profit and loss statements and also prepared. This is a very important

54
 document, maintained by the accounts and will contain all the information
required for any transaction whether 'Receipt' or 'Issues'

ACCOUNTING OF STORES

Accounting stores accounting has five distinct functions such as:-

i) Store keeping
ii) Ledger keeping
iii) Inventory control
iv) Costing
v) Disposal
Responsibility of the above functions are divided between various section either
jointly or alone.
STORES ACCOUNTING
RESPONSIBILITY

Store keeping Ledger keeping Inventory Control

Numerical accounting Financial accounting EOQ/Phased supplies

Bin card Ledgers Control charts
(By stores division) (By accounts) (material division)

Cost Disposal

Numerical accounting Realisation of residual cost of material

Price prod ledgers Ledgers

(By accounts) (By public Auction and open tenders jointly

by
Management and Accounts)

ISSUE OF STORES
GENERAL PROCEDURE;

The ultimate of any production unit is "delivery of goods to the consumers or the
concerned at the right time, at right place the right material as efficiently and as quickly
as possible. This is the case with all the Ordnance Factories in 'delivering the goods to
the Defence Forces / Defence Dept. it is the quantum of the Goods delivered (issued)
that is recognised in the over all performance of the Factory. Hence "Issue of stores" is a
very important function of Ordnance Factories and to effect the ISSUES, certain norms
are laid down are evolved by experience and commonsense.

A) Norms For Issue

j) An indent from the Army, a demand from other Factories a requisition from
other units or firms specifically indicating the requirements and delivery
schedules.

55
 ii) Acceptance of the indent / demand/ requisition and proceeding the camp for
production by release of orders on shops and advice to stores on the made of
despatch and schedule of despatch. This will be the authority for issue.
iii) Release of material /stores for issue against specific workorders. Besides
authority for issue a release from PC/MC/PV is essential in all cases to
provide required materials.

iv) Quality assurance by an independent inspection authority for having inspected

the stores as per specifications and passing the same as "serviceable" for
immediate use.

v) Preparation of ISSUE documents like Issue Vrs packing notes, forwarding

notes, export documents etc as the case may be.

vi) Packing of stores as per specifications.

vii) Despatch of stores as per the authority, as per made of despatch advised,
freight paid or to pay.

viii) Despatch documents to all concerned in time to clear the consignment and
also release the Issue vouchers with all despatch details to PC/PV/Accounts.

B) PREPARATION OF DOCUMENTS RELATING TO ISSUE MATERIAL

a) Authority for issue of material

I) Extract of work order
II) Letter authorising the issue, method of packing, mode of transportation and
whether freight paid or to pay
III) Release order / letter from PC/Matl control PV stating specifically that the
material can be issued against the authority given.
IV. Inspection report from the independent inspector of work inspection as the
case may be
VI. Examination order in respect of stock items.

b) Preparation of Issue Vouchers

Having received the documents cited above and having decide the type of issue
involved the IVr will be prepared on IAFZ-2096. The issue voucher will contain the
following information IVr no and date consignee's reference LF no if any, Nomenclature,
Qty in figure and words, as brief as into why issued and how issued, packing details and
despatch details. The issue voucher will be signed by an official not less than the rank of
store holder or Asst. Manager.
In case of 'P' Vrs demand note for the stores also will be released by the PC/MC/PV
which will be signed and delivered at the stock Godowns. The stores will be collected
and labeled and sent to Issue bond packing area.
In case of stock items the items will be collected against the issue voucher at the
respective stock godowns, labeled and sent to issue bond packing area. The same applies
to nominal loan and nominal issue also.

56
 BOOK KEEPING

Introduction:-

Before we decide on the methods of record keeping, It is essential to know the

accounting of stores to begin with the fundamental of the documents/records involved
should be understood so that equal importance could be given to Management cover
purchase/provision and the stores management. Hence it is essential to cover the entire
field and all the records involved.

Purchase Records:-

i) The planning sheets or store holders inability sheets:

This is the basic record authorising the purchase to initiate provision action as per
details contained in it. This is maintained by the provision/purchase section (Material
Division).

ii) Tender Enquiry folder, which is later converted in to a supply order folder:

This record would be very essentials from the audit point of view as the basic
record for effecting payments for the stores purchased. This record is to be kept number
wise and year wise for o5 year from the date the PDC and is avital record often required
for reference. At times in disputes over payments by the firms, the record is often called
of by the courts of law. Pre audit before release of the supply order or post audit of the
supply is very essential.

iii) Material control charts or Master planning sheets:-

These charts are the control charts indicating the entire procurement and control
of issue there of, of each and every item, but for this sheet, it would be impossible to go
for purchase / procurement action. This chart will give the quantity required for any
period the phase of procurement, the phase off distribution to the shops, dues in both
dates.

iv) Bills for payments of cost of materials:

The bills are auditable documents and are booked to the supply order, receipt
vouchers released by the stores for effecting payment to the firms. The bills are submitted
to the accounts section only after the supply order folders are audited and cleared by the
Accounts. The bill register and the bills are subject to test audit as well. The bills are to
obe maintained number wise and year wise for TEN years or final bills are paid/cleared.

v) Stores Record

Material Inward slips (MI SLIP) which are prepared with reference to the supply
order, one for each item and its packing materials. MIS will be converted into Inspection
report after the MIS, the stores are inspected and cleared by the inspection department
and at this stage it is controlled as receipt voucher and passed on the stock Group /
Godowns for collecting the materials, binning and posting in the Bin cards and thereafter
releasing the receipt voucher to concerned sections. Receipt voucher is an auditable

57
document and controlled by analyst called receipt voucher controlled register by the
record Group of stores. Receipts are also indexed in each supply order folder at the bond
and through progress sheets are kept number wise and year wise in the records room. It
is essential to keep all the receipt vouchers for FIVE years for reference.

CERTIFIED RECEIPT VOUCHER (CRV):

Vouchers which could not be directly linked to any document at the same time
required to account for certain stores to pass through the ledger. These vouchers are kept
with the regular receipt vouchers in the record room.

Return Notes:

Just like demand notes the return notes are prepared by the shops / PC to return
to stock group. The return notes are also auditable documents and are to be signed by
the inspection authority to ensure the serviceability of stores. This should be routed
through PC/MC which released the materials for production. One copy is filled in the
record room.

Discrepancy/Deficiency and lost statements:

This is one of the very vital stores document. It is prepared by the receipt group of
stores division, whenever any discrepancy / deficiency in the quantity is noticed. Full
text of the circumstances leading to the discrepancy deficiency is to be recorded in the
body of the voucher for correct assessment of the deficiency. A register is maintained in
stores for this purpose, which controls the DD vrs prepared and separating in the same
register as art-II for losses incurred. In case of losses a certificate authenticated by the
accounts officer, recommending of the intermediate officer and the final order of the GM
or DGOF as the case may be is recorded.

DEMAND NOTES:

This is the authority to draw stores from the stock group. Demand notes are
released by PC/MC group for production items. The demand notes are to be presented
only at the time of drawal of respective bincards. It is essential to keep the demand notes
for five years. It is an auditable document.

ISSUE VOUCHERS:

(IAFZ 2096) Issue vouchers are prepared by the issue branch of for all issue to
outside. The issue vouchers are normally prepared only on specific authority of CP/MC
section clearly indicating the purpose for are made. For stock items 'S' series vouchers
are made. For nominal transactions 'NL' vouchers are made.

CERTIFIED ISSUE VOUCHERS:

The CIVs are prepared in case where the issue could not be directly linked up to
any documents or records basically to change if the stores CIV is prepared. This is an
auditable document.

58
 Finally it is the scope of the paper only to highlight the importance of these
documents so as to keep proper record of it. Which should be record keeping for the
prepare Accounting of stores.
A.B.C.Analysis

Analysis of all stores items representing the entire inventory in terms of annual
consumption of each in rupee will reveal 10% of the items will represents for about 80% of
the total annual consumption cost., 20% of the items will account for about 15% of the
annual consumption cost, while balance 70% will cover only 5% annual consumption cost
=100%. The small number of high consumption value items are called 'A' items, the
medium consumption value items are 'B' items while the large number of items whose
annual consumption value is very low are 'C' items -ABC analysis does not depend on the
unit cost of the item, but only on its total annual consumption.

STORES ORGANISATION AND CONTROL

Stores Management plays a vital role Material Management. The Primary

objective of the stores function is to provide a service to the production service shops.

MAIN FUNCTIONS OF STORES MANAGEMENT:

1. Receipt of stores and related accounting.

2. Issue of stores and related accounting
3. Stock and disposal of stores and related accounting including
observation/Turnover of stores.

MAIN BRANCHES OF STORES ARE :-

1) Receipt 2)Stocks 3) Issues.

STORING SYSTEMS:-

Two basis systems can be used in physically controlling stores Material.

1) Closed stores system

2) Open store system.

Closed stores system:

In this system all materials are physically stores in closed or controlled area. As
per rule no one other than stores personnel is permitted in the store area. Materials enter
and leave the area along with accompaniment of an authorising document. This system
is designed to offer maximum physical security and to ensure tight accounting control of
the inventory materials.

Open store system:

In this system no store room as such exists. Each materials is stores as close to its
point of use as is physically possible. Storage facilities are completely open and any
worker has access to this storage facility.

59
 The open system is designed to expedite production activities. It places little
emphasis on the physical security of the material. Material handled in open system
should not be subject to pilferage nor they should be easily damages.

If production requires delicate or pilferage items, they should be controlled in

close store room.

Ordnance factories follow closed stores system. The stores are received and issued
by the stores on proper authority only. However bulky materials such as steel, billets
required in large quantity may be stores in open near the production section to minimize
the handling.

PLANNING ASPECTS CONNECTION WITH STORES:

STORAGE SPACE:

While planning for storage the following points are to be taken care of:

a) All types of items required by Industry

b) Quantity of each item expected

c) Closed storage system items/ Open storage items.

d) Layout of godowns leading to minimum transportation with respect to

loading/un loading point and consuming / Issuing section.

e) Special storage arrangements like explosive, inflammable item, Gases, acids,

Textiles, paper, rubber items, various chemicals, petrol, oils and lubricants etc.

f) Layout of Railway Track and Construction of Platforms:

In the Present days facilities are used in most of the cases for receipt and issued in
most of the cases for receipt and issue of bulk of the items. Railway tracks are laid inside
the Factory where factory locomotives can directly take the wagons. No. of
platforms/hand stands are constructed according to the requirement of
wagons/Loaded/unloaded on day to day.

Transportation:

Transport facilities are planned for the following purposes:

I. Receipt and despatch of Railway wagons from the factory

II. Shifting of materials from unloading point to respective godowns

III. Transportation of materials from godown to consuming section

IV. Collection and despatch of materials from Road / Railway station

V. Transportation of materials from issuing section to loading point

60
 VI. Collection and despatch of materials from road transport companies.

VII. Collection and despatch of items from contractors premises and other
sister factories, Embarkation Commandant etc.

Weighing Arrangements:

Wagon Weigh Bridge, Road Weigh Bridge and Weighing scales are to be provided
for weighment of incoming materials.

Material Handling equipment and Accessories:

Due to heavy cost of storage space, It is essential to make the stacks higher.
Similarly it is essential to use minimum man power for unloading / Loading, stacking
and transportation to achieve economy. Hence handling equipments and accessories are
planned and used depending upon the requirements.

RECEIPT BRANCH:

For convenience, the receipt branch has been divided into receipt office and receipt
Bond. The functions of both the groups are as under:-

a) To receive and collect materials.

b) To check quantity, compare with despatch documents/packing notes as per

S.C.A/Ts IFD and other connected authority and prepare material inward slip
(M.I.Slip).

c) To put up material for Inspection and provide necessary facilities like providing
samples etc. to inspection.

d) To prepare receipt voucher on clearance of MI slip and inform all concerned for
further action.

e) To regularise quantitative discrepancies by preparing:

i) Expense voucher.
ii) DD voucher for discrepancies as receipt
iii) By preparing claims on Railways / Transporters.
iv) DD voucher and loss statement for transit loss.

f) To have correspondences with the firm/factories till their settlement.

g) To return the rejected stores to concerned factories/firms.

h) To clear 2&5 copies of I/Notes.

i) Redirection of stores received in economy wagon to other factories/Units.

j) Payment of demurrages and regularisation.

61
STOCK BRANCH:

STOCKS ARE MAINTAINED UNDER FOLLOWING FOUR CATEGORIES:

1) Regular stock: For which L.F.S are existing. This includes production and non-
production items.

2) Deposit stock: These are stores held deposit in the factory on behalf of Air Forces,
Navy and Armed Forces in repaired on conversion for ultimate utilisation in
manufacturing.

3) Stock pile stock: Strategic items or stores which are difficult to procure in case of
normal supplies and are of non-perishable nature. It should be of imported origin.
Value of the item should be above Rs.5000/-

4) Nominal stock: For these items there is no L.F.Nos. (Ex-Stationary items,

protective clothing, items purchased under contingency grant, Estate funds etc.

Functions of stock group:-

a) To collect material from receipt bond on receipt of receipt vouchers.

b) To count / weigh stock and enter into bincards

c) Issue against authority of D/Notes, Issue voucher and post these issued in bin
cards.

d) Carrying out preservation and care and custody of stores.

e) To maintain first in first out / turning over of materials.

f) To make action for disposal of slow moving / non - moving items.

g) Raising examination orders for items sent outside the factory in case of mix - up.

h) Stocking of items lot wise taking care of expiry period etc, incase of some specific
items like grinding wheels.

i) Departmental and DGOF stock verification.

j) Investigation and regularization of discrepancies in stock.

k) To take materials on stock charge against return notes.

ISSUE BRANCH:

This group deals with the issues made outside the factory only. Issues are make to
sister Ord. factories, depots, private firms by factoroy transport, Rail, Air Sea etc.

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Main function:-

I. To issue materials by full wagonload, full Turk load, and post parcels, part
Turk load, part wagons load etc., after making RR/Despatch documents.

II. To make correspondences and settle discrepancies.

III. To arrange wagons, trucks and other modes of despatches.

Issue vouchers certain by issue Group:-

"P" Series voucher - Production items.

"S" Series vouchers - Brought out items purchased by
LP/Oobtained by IFD
"R" Series Issue Voucher - Stock pile items
"D" Series Issue Voucher - Deposit stock
"N" Series Issue Voucher - Nominal items
"M" Series Issue Voucher - Machiner items
"NL" Series Issue Voucher - Nominal loan issue voucher

control:- Stores should continuously identify, analyse and isolate items into:-

i) Items with no receipt and no Issues.

ii) Items with receipts and no Issues.
iii) Items having high stock.
iv) Items that have recorded abnormal increase and from normal or specified
limit.

I. Feedback on these will increase the awareness of the management towards better
inventory Management.

II. Need to cut down the paper work / office procedure and thus internal lead time
can be reduced. This in return will reduce the buffer stock.

III. A.B.C analysis can be applied and 'A' category items can be given priority right
from receipt stage till it reaches stock stage. Different colored documents can be
utilized to identify 'A' category items.

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 PRESERVATION
INTRODUCTION:

In Indian Industries the Material is represented as 60% of the gross out put of the
goods. In Ordnance Factories the cost of the material works out to 67% to 69% of the cost
of the production. Even 1% saving in material cost will be of great saving. Preservation of
stores plays a vital role in minimizing the deterioration and spillage with the result the
material available is in fully serviceable condition as and when needed by the production
/ service section.

IMPORTANCE OF PRESERVATION:

Considerable importance is given to preservation in Ordnance Factories. I.S.S.P

Organisation (Inter services stores preservation) formed by Govt will be responsible for
safe guarding Defence stores from ravages of biological as well as non biological attacks
and deterioration in stage.

DEOF is represented in ISSP committee. The committee will formulate the

policies and make recommendations in prevention of deterioration of service stores and
also co-ordination the activities in different organisation. ISSP Organisation also
conducts training course. Quarterly reports are submitted by Factories to ISSP and
DGOF regards the lesses in storage.

HAZARDS: Hazards while storage can be divided into two types

(1) Biological Hazards

(2) Climatic Hazards

BIOLOGICAL HAZARDS:

These are caused due to living organisms like rodents, silver fish, moth, insects,
fungi or bacteria, rats mildew and ghoons etc.

CLIMATIC HAZARDS:

These are due to temperature, atmospheric pressure, moisture, gases, vapour,

dust and light.

Biological Hazards can be prevented by two methods as shown below:

BIOLOGICL HAZARD

Preventive method Curative method

Use chemicals like creesite, To kill the pests by exposing to DDT,

Naphthalene etc., sun Fumigation etc.,

Climatic Hazards:

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 Can be prevented by creating a barrier between the article and the surroundings.
For e.g some coatings like zinc coating, wax coating etc., given over the article.

CAUSE OF CORROSION:

All metals with the exception of the metals, such as gold or platinum are subject to
corrosion, the difference between them is an the degree and rate of corrosion. In all
cases, the eventual destruction of a product is inevitable unless protective measures are
taken.

a) Reaction of metal with moisture and Oxygen:-

About 70% of all instances of corrosion are due to reaction of metal with moisture and
oxygen from the air. Taking iron as an example: 2Fe+H2o+O2+Fe2O3+H2

b) Reaction of metal with Acid:-

This type caused by the reaction of metals with acids is more severe and is generally
caused by the corrosive fumes in the atmosphere or various chemicals on the surface of
the metal. The chemicals present react with moisture and form traces of acids that attack
the metal. These metal acid products react with more moisture to form the metal
hydrates that finally decompose leading to corrosion.

c) Reaction with salt water:

Another accelerated process of corrosion occurs when metals react with salt water or
salt atmosphere. Particularly salt spray from the ocean. Salt being hygroscopic, picks up
water from the atmosphere and holds it to the metal surface, where it acts as a catalyst to
promote corrosion.

The metal parts, subjected to rust or corrosion should be stored indry area they may
be covered with suitable rust inhaviting compunds.

The different types of storage / Preservation method for different materials in the
Annexure 'A'.

Annexure 'A'.

1. Preservation of steel Reds/Plates: Iron coming in contact with water and moisture
forms rust/corrosion. After cleaning, rust line or anti corrosive compound may be
used to put over the surface.

2. Tools: Cutting surface to be protected by coating with plastic, or dipping in

paraffin solution. For files, greasing by mineral jelly reduced with mineral all to
suitable consistency maoy be used and then wrapped with paper.

3. Cement: Supplied in gunny, paper or cloth bag. Gross wt being 50 kgs should
stored in weather tight godown. Dampness will cause setting.

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4. Castings: Cast iron casting improve by ageing in atmospheric temperature. Steel
casting may remain in open with a cost of paint to ensure that these do not rust.

5. Machined parts : Castings with machined faces may be dept outside but the
machined faces, particularly threaded portion and holes to be protected properly
with grease, plugged where necessary. Journals should be packed with wooden

6. slots over a coat of paint (white lead).

7. Paints Varnish and Enamel : To be stored under covered accommodation. The

godown should be cool and well ventilated. The containers to be leak proof. In
order to avoid setting caking sealed paint drums to be rolled and turned about.
Enamel improves by storage up to 2 years but after that, it has a tendency exidise
and thicken.

8. Chemicals: Chemicals to be packed in leak proof containers. The containers are

kept on a thick layer of sand spreded on floor. Chemicals to be tested periodically
to ascertain the degree of deterioration if any. Accommodation to be equipped
with fire proof goods and well ventilated. In case of acid containers, the cock to be
sealed with melten wax or plaster of paris or with quick lime and linsed oil.

9. Timber: Wooden sleepers stacked should have end clamps to prevent and
splitting. 2) Coal tar is preventing for white ants. End of pieces are coated with
coal tar. 3) Timber and plywood are stacked over pillar type dunnage the top of
the stacks to be covered.

10. Rubber goods: Separate godown with low room temperature (16 deg to 20 deg C)
afairly high humidity and complete darkness is suitable. During periods of very
low humidity i.e during dry summer care should be taken to maintain high
humidity. Tyres should always stand on end. Tubes should be wrapped in greased
paper dusted with French chalk. Don’t keep stock fomore than 6 months. Sunlight
has adverse effect through antinitic rays. Keep away from grease or oil

11. POL ITEMS: Depots for POL items should be sited on reasonably leveled hard
ground. The site should be well drained. The fire caution arrangement should be
provided. Only one item should be stored in one stack. The drums should be leak
proof. First in first to be followed.

12. Leather stores. The leather goods deteriorate due to drying fungal attack, termites
and rates attach. To prevent drayage, the leather should not be exposed to sun. it
should be periodically treated with authorized preservative and properly wrapped.
Wet leather should be wiped with dry cloth and aired under shad. Leather to be
treated with 1% parantitophenol in methylated aprit to protect against macro
organisms. Soad laundry is the authorized preservative where stiffness rigidity is
required.

13. Optical Instruments. The Moisture in air forms condensation on lens or the
optical instruments. To prevent items, silicacel in small packets is kept along with
the optical instrument and the entire unit is heat-sealed. These are then packed in
Thermocoal boxes and kept inside A/C Rooms.

66
 14. Cotton and woolen Fabrics: Moisture and water are harmful. Store in steel
Almirah, 1.5 meter wide wooden goods, felt, should be wrapped with paper. Rats
and white ants are destructive agent. Wooly bear, moths silver fish are harmful for
whool. Insecticides should be sprayed.

15. Coal: should be piled in rows of slacks, preferable not over 3 metres length and 30
metre wide at the base, each pile being preferably not in excess of 1,500,000 kgs.
Clear space of 3 metres to be maintained between piles. Should not be slacked
against wooden posts nor in touch with or warm pipes or flues. Shunting pilets
should not throw sparks.

CANNALISED ITEMS

The items canalised for Import through public sector Agencies have been shown
in Appendice 5 of Import & Export policy 1984-85.

CANNALISING AGENCY
1. Minerals & Metals Trading Corpn.
Of India (MMTC)
2. State Trading Corpn., of India (STC)
3. Steel Authority of India Ltd., SAIL
4. Electronics Trade & Technology
Development corporation ETTDC
APPENDIX 5-A
ITEMS
Platinum, sulphur, Aluminium,
Antimony Asbestos, Copper,
Zink, Lead Tin & Nickel
Chemicals like Calcium, Borate,
Vinyle, Acitate sodium, polyster
filamentt yarn, Natural rubber, writing
& printing paper DDT, Cuprolactum,
Viscose filament yarn.
Pig Iron, Corbon Steel Alloy Steel
Calculator, chips Tc picture Tubes,
CRTS for TV sets.

67
 STOCK VERIFICATION

These are verified annually by SVG. During verification the balance of the
documents should tally the ground balance. If any discrepancies found that will be
endorsed by Stock Verifier in Red Ink. Discrepancies can be settled only with CRV/CIV
as the case may be.
Production shops should enter on Inventory Register, the items drawn by them.
Which will be verified by Stock Verifier periodically. The responsibility of the verifier is
vast such that he has to verify each and every item whether it is movable / immovable /
portable. Verifier is the authorised person to verify the Assets of an Organisation as per
the record maintained from time to time.
In short the following documents are maintained for verificatin purpose.
1. Capital Register'
2. Furniture / Office Equipment
3. Tools & Gauges
4. Miscellaneous Items
No. of registers can be as per the Volume of Items dealt. In any case a Register
cannot exceed 100 pages per Volume. Which should be duly numbered and enforced with
a certificate from Head of Section and Accounts as per Specimen. Stock verification is a
statutory requirement of a factory. Departmental stock verification will be carried out in
factories by the stock verification group working under GM. . If any discrepancies, the
matter will be referred to the G.M of the factory as early as possible for necessary actions
endorsing copies to A.O. duly signed by the concerned section representative. Stock
verifiers posted at the factories will be under the G.M./Officers in-charge for all ordinary
administrative purposes and will normal factory working hours as observed by stores
section. They are independent, so far as their work is concerned and each individual will
be responsible directly to GM. Senior stock verifier at each factory who in addition to
performing his share of stock taking, will liaison with the factory management, the local
Accounts Officer.
Responsibility of stock verifiers: Stock verifier will be responsible for the physical
verification of stock and deposit stock items, inventory articles (including schoolbooks
and technical books in the factory libraries) machinery, building, electrical installation,
Medical Stores.
Note: Verification of finished articles on charge on production ledger cards and stock of
materials in process of manufacture held by the shops will not be their responsibilities.
Responsibilities of senior stock verifier: Collecting & distributing instruction information
and reports.
C) Drawing up the programme of stock taking.
D) Allocating the work among stock verifiers.
E) Maintaining progress details.

F) Regularly submitting periodical progress reports.

G) Ensuring that all stock verification records are properly maintained.
Working condition of stock verifier:

68
 Stock verifiers will not give advance intimation to the factory of particular items to be
verified on any day/days.

Factory representation:
Verification will be carried out in presence of a representative of the section
concerned.

Technical identification: It will be the responsibility of the factory management to

identify such items as may not be recognizable by the stock verifier.
Assistance:
All labour and equipment needed for proper verification will be supplied by the
factory as required for the work.
Difficulties:
In difficulties in connection with verification of any item should be brought to the
notice of GM Verification cycle procedure and maintenance of report.
Record:
A register will be maintained (entries in ink) to show the number of items checked
daily by each stock verifier.
B) Weekly totals will be recorded for GM monthly total will also be recorded
statistical and audit purpose as necessary record will be in the prescribed form.
Weekly progress reports:
Weekly progress reports will be forwarded promptly to the GM Account Officer in
the prescribed proforma.
Annual Reports:
At the end of each Stock Verification cycle of the factory GM. In conjunction with
S.G. Group should determine; as have been left unverified and reasons for Non-
verification. Tohe factory management will prepare a statement of full details in respect
of those items comprising a) Serial No b) L.F. No. C) Nomenclature d) Accounting unit
e) Stock Balance on 31st March f) Value of stock g) Date of last verification and h) reasons
for non-verification.
Following upon the detailed statement referred to above a regular report will be
furnished to the O.F. Board in order to show the progress of clearance of the items which
are not verified in the previous cycle. The S.G. group will accordingly, indicate this
regularly on their weekly progress reports, by referring to the specific serials Nos. of the
annual reports which of the items have since been verified.
Turn Over:
All stock and deposit items will be verified at least on during each financial year,
unless specified sanction for a deviation in respect of any item has been received from
GM.

69
 a) New items of stores received after the 31st January in each year should be taken as
verifiable in the next verification cycle, with the provision that they one to be
completed within 12 months of being brought to account in the factory. If any of
these new items received during February/March can, however, be verified
conveniently by 31st March, provided that such verification does not affect the
current annual programme.
b) The work of each stock verifier will be planned and verification will proceed
according to plan, locally co-ordinate and as generally approved by GM. List of
certain valuable items will be consultation with the section concerned and the
items enumerated thereon will be verified at more frequent interval and these lists
to be approved by O.F. Board.
c) List of certain items will be consultation with the section and the items
enumerated thereon will be verified at more frequent interval and these lists to be
approved by GM.
d) List of stores Ledger Folios which have shown a nil balance (regarding both
quantity and value) continuously for at least two years and on which no
transactions have been recorded during this period, will be submitted by the A/C
Officer to the management (Fy) who will scrutinise the items and select those
which are to be considered as "dead", i.e. store unlikely to needed in the near
future. These will be intimated to the Account Officer for removal of the folios
from the current ledger, and the factory also promptly remove corresponding Bin
Cards.
e) Inventory articles, Machinery, Building, Electrical Installation and Medical
Service will be verified once in each financial year.
f) In order to keep stock verifiers fully posted as to the amount of work to be done,
Factories will notify them of all new items and also those detailed, in respected of
stock ledgers and the other registered involved.
Stock-taking sheet:

Stock verifiers will enter the date serial No. Nomenclature, L.F. No. Stores
Accounting unit and Bin card or Inventory balance on date of verification. Balance found
a physical check and date of last verification. Each sheet will be signed by the stock
verifier and the associated Fy. Representative.

Method of verification:

General - verification will be carried out a) by actual counting, weight or

measurement, except where other methods to determine accurately the quantities in
stock have already been adopted or will be approved, in consultation with the local
Account Officer.

It should be obtained for the modified method before stock verification is actually
carried out.

a) Uniform unopened package - when verifying store, contained in uniform

unopened packages, at least 5% of the packages will be opened at random and
examined.

70
 b) New Receipt - The stock verifier will be informed of all new Receipts, which will
be weighed/measured in this presence and stocked a part from the old stock, in
such a manner that he can take measurement to guide him a future stock
verification.
c) Continuous stock taking - will be carried out departmentally, S.V. Group will
verify every item once a year or in two years according to the nature of the stores.
d) Stock-taking of Coal - Coal will be weighed in on receipt and stock in units of 500
tons and stock will receipt and stock in units of 500 tons and stock will be suitable
marked with while bands and a certificates as to correctness of the quantity in
each stock will be furnished to the stock verifier when required.
e) Stock taking of Soda, Nitrate, Cotton Waste etc. will be weighed in on receipt in
the presence of the stock verifier and stacked in lots of convenient size. Lot will
not be disturbed or re-stocked in a different from that is which it was originally
stacked. If it should be necessary to do this, the bags or bales will be counted
again in the presence of stock verifier.
Stock Taking of Textile Materials:

a) A test check not exceeding 5% of the stock will first be conducted and the contents of
the remaining packages accepted in accordance with package making.
If wide variation is observed in first test, a second and third test check not exceeding
5% of the stock from a different lot will be conducted in each test.
If wide variation is observed in all the three test check, the matter will be reported to
the G.M. for necessary action.
Computed verification - Lists will be maintained for items which are not actually
counted, weighed or measured with conversion factor recorded for each item. Details of
exact method of arriving at the conversion factories will be recorded, including the
number of samples counted/weighed/measured, the number of such checks, variation
etc. duly certified by the senior Stock Verifier.

Inventory Register - Each sheet of the Register will bear the initials and dates of the
Stock Verifier and number of item checked.

Machinery, Building Electrical installation: - Items to be verified are those, which are
separately borne in Block Register of Capital Assets.

Medical Stores Register - Stock verifier will enter in red ink the balance found in
physical verification by him on the day of stock taking.

Addition and Alteration - All amendments to original entries will be made neatly and
attested with initial and date.

Internal Verification:

In addition to but not concurrently with the regular stock verification carried out
in factories by the GM stock verification organisation, at least 10 percent of the total
items of stores stock will be verified by factory staff as an additional check. The items
selected should be those which are costly per unit, those frequently received and issued

71
and easily salable in the market and in general, where past experience shows the
desirability of greater vigilance.

72