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REPORTOF
PROCUREMENT AND INVENTORY MANAGEMENT
ON
PROCUREMENT AND INVENTORY PRACTICES AT
TUWAIRQI STEEL MILL LIMITED
Institute of Business ManagementC o l l e g e o f B u s i n e s s M a n a g e m e n t
This Report is prepared by
PROCUREMENT AND INVENTORY MANAGEMENT
TUWAIRQI STEEL MILL LIMITED
JEHANZEB ANEES (MBA – IM - 6944)
As a part of
PROCUREMENT AND INVENTORY MANAGEMENT
Course under theSupervision
Of
FAIZUL ISLAM
Jehanzeb Anees Page 2
PROCUREMENT AND INVENTORY MANAGEMENT
TUWAIRQI STEEL MILL LIMITED
The Exordium
With the Name of Allah WHO is most loving and the Merciful!
Praise to Allah, Lord of the creation, the Compassionate, the
Merciful, the King of the judgment day! You alone. We pray,
and to you alone. We pray for help, guide us to straight path,
the path of those whom you have favored, not neither of
those who have incurred your wrath, nor of those who gone
astray.
(Al Quran)
Jehanzeb Anees Page 3
PROCUREMENT AND INVENTORY MANAGEMENT
TUWAIRQI STEEL MILL LIMITED
Procurement and Inventory Management – Research Report Letter of Transmittal
10th August 2011
The Course lecturer
Procurement and Inventory Management
Institute of Business Management
Karachi.
Dear Mr. Faizul Islam,
Subject: Research Report on Procurement and Inventory Practices at Tuwairqi Steel Mill Limited
We feel immense pleasure in presenting to your good self, the term report as part of our course
requirement. We found this report to be truly challenging in many aspects, indeed very interesting
in relation to the various interpretational and engrossing exercises. Writing this report itself was
truly comprehensive learning experience.
The purpose of this report is to provide Procurement and Inventory practices at Tuwairqi Steel Mill
Limited which is considered to be the most important element for any organization in the world.
This report covers components of procurement and inventory, its practical advantages and many
more.
I have tried my level best to complete the report with respect to the desired requirements.
However, if any explaining is required, I would be honored to oblige. Kindly accept this humble
effort of bringing forward our research and findings on the subject matter.
Sincerely,
Jehanzeb Anees Page 4
PROCUREMENT AND INVENTORY MANAGEMENT
TUWAIRQI STEEL MILL LIMITED
Jehanzeb Anees
(MBA – Industrial Management)
I am gratified with the core of our heart to “Almighty Allah” who made it possible to complete this
report.
I especially thanks to very loving and caring teacher Sir. Faizul Islam and friends not only
encourage me but guide me every time.
I must take this opportunity to full great pleasure to our teacher of Procurement and Inventory
Management Sir. Faizul Islam for his continuous encouragement support and lead toward the
report.
The way he taught us in the Procurement and Inventory Management course is immense and
really give us the clear idea about the course which will help us in the future by applying the
concepts that we have learn in our entire semester.
Jehanzeb Anees Page 5
PROCUREMENT AND INVENTORY MANAGEMENT
TUWAIRQI STEEL MILL LIMITED
TABLE OF CONTENT
S.NO DESCRIPTION PAGE NO
1. Executive Summary 7
2. Introduction of the Company8-12
3. Pakistan Steel Industry Overview13-15
4. Production of Tuwairqi Steel Mill Limited16-23
5. Procurement Procedures at Tuwairqi Steel Mill Limited24-41
6. Inventory Procedures at TSML42-43
7. Critical Analysis44-46
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8. Recommendations47-49
9. Raw material to be extracted50
10. Conclusion51
11. References52
EXECUTIVE SUMMARY:-
Al Tuwairqi Holding emerged in 1977 on the map of kingdom of Saudia Arabia and today become
the omnipresent privately owned steel organization in the Middle East and expanding its
manufacturing beyond Gulf regions, south East Asia and Europe. TSML is using a Midrex process
or ITMK-2 which is initial of its sort in Pakistan and having reduction furnace height of 107 meters.
TSML Midrex plant is proficient of producing 160 Ton / Hour of DRI with an 8000 man hours , this
equates to an annual production of 12,8,0000 ton per year. At TSML site there are integers of
departments which are involved in the daily operations of DRI plant. At site project planning
department plays an imperative role by charitable the endorsement of funds to the concerned
department for the procure of various goods. At planning department they have specified a
purchase process through which the demand raiser canister acquires any goods for its project
works by filling Material Purchase requisition form which contains all relevant information about
the items with its value. Next come HSE department which are greatly focused at TSML site as
they say “SAFETY COMES FIRST”. At TSML HS department provides every utensil to its
workers and employees when they work or visit the plant. Document and control department holds
each and every information regarding TSML plant in the form of specification books, plant layout
and others. Fabrication facility department at TSML involves in the manufacturing of any part
relating to the plant site as they are equipped with the state of the art machineries such as CNC
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TUWAIRQI STEEL MILL LIMITED
milling machines and etc. Store department at TSML keeps large amount of inventories such as
plant parts, stationeries which they contribute to the concerned departments on demand. At last
Procurement department purchases diverse goods for the smooth operation of DRI plant and its
related departments. At TSML different departments are well organized in terms of their smooth
process which results in the completion of work on time. TSML procurement and inventory
department are playing their important role in order to acquire the raw materials which can run the
operations of the steel mill. ABC analysis should be implementing in the procurement and
inventory department so that the purchasing can be done in more and more transparent and in
correct manner.
INTRODUCTION OF THE COMPANY:
About Tuwairqi Steel Mill
Tuwairqi Steel Mills Limited (TSML) is a state of the art environment-friendly steel manufacturing
project which is based on the world’s most advanced Direct Reduced Iron (DRI) technology of the
Midrex Process owned by Kobe Steel of Japan. With a designed capacity to produce 1.5 million
tons of high-quality DRI per annum, TSML will be the largest private-sector integrated steel
manufacturing unit in Pakistan.
TSML’s complex spreads over an area of 220 acres at Port M Qasim, Karachi. It is being set up in
Pakistan by Al Tuwairqi Holding (ATH), the largest private sector steel producer and one of the
leading business concerns in the Kingdom of Saudi Arabia. Al Tuwairqi Holding includes nine
large industrial units in Saudi Arabia, UAE and the United Kingdom; seven of which are
metallurgical and steel plants besides one Electrical Switch Gear manufacturing company and a
300 megawatt power generation plant. In addition, three mega projects are also in progress: one
in Dammam, one in Sharjah and one in Pakistan. ATH's growth today has gone beyond the
boundaries of Saudi Arabia and encompasses areas of Middle East, South Asia & Europe.
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Brotherhood Cast in Steel
The time tested friendly and brotherly relations between Saudi Arabia and Pakistan is a
“Brotherhood Cast in Steel”. The two Muslim countries have been a support for each other in thick
and thin and have always demonstrated that the hearts of the two nations beat together.
To further strengthen this relationship, Al Tuwairqi Holding, with the support and encouragement
of the Government of Pakistan, decided to take the bold initiative of bringing a state-of-the-art
technology of steel making in Pakistan. About 30 years ago, Al Tuwairqi Holding embarked upon a
journey with the visionary approach and dynamic leadership of Dr. Hilal Hussain Al Tuwairqi & Mr.
Muhammad Tariq Barlas.
Today, the Al-Tuwairqi family, with over 2500 members, is already making a difference and
INSHAALLAH will continue to do so.
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Director (Projects)
Mr. Zaigham Adil Rizvi is a figure well known and respected in the industrial and corporate sectors
of Pakistan and is a distinguished personality in the engineering community. Adil is a
philanthropist, who strongly believes in paying back to the society and participates generously in
welfare services and social development programs.
He holds a Masters degree in Electrical Engineering, besides being Masters in Economics. His
professional career spreads over a span of 28 years. He has worked for various top-notch public
and private sector companies, both in Pakistan and abroad. He possesses outstanding leadership
skills and believes in unite and lead.
He has participated in several national and international conferences, moots
and seminars and is an effective speaker too. Adil has various medals and
awards to his credit. His performance-driven behavior towards work and a very
strong faith in sincerity to purpose, helps him achieve goals even under tough
circumstances.
He is currently working in the capacity of Director (Projects), Tuwairqi Steel Mills Limited and
Director of TIEPCO, both are the subsidiaries of Al Tuwairqi Holding. His down-to-earth vibrant
personality and a firm belief on value system, make him stand firmly against every challenge, both
in his personal and professional life.
Mission
We endeavor to be a respected world-class organization and the leader in Pakistan’s steel
industry by:
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Fostering teamwork
Delivering premium products & services
Nurturing talent
Developing solutions based on cutting-edge
technologies
Respecting the environment
Caring for our community
Demonstrating high ethical standards.
Vision
To transform into prosperity, the benefits in Hadeed.
Values Honesty
Integrity
Team Work
Corporate Values
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TUWAIRQI STEEL MILL LIMITED
Management Principles
We are committed to employ fair and transparent business management practices, based on
the following principles:
To maintain our identity as a trusted and responsible corporate citizen in the society.
To keep on challenging ourselves in order to provide world-class products to our
customers.
To keep on changing ourselves, so that we can step into the future and achieve more
development.
To create a group, equipped with vitality and technical expertise, by developing and
empowering our people.
TSML Products
Direct Reduced Iron
Hot Briquetted Iron
Billets
Slabs
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TSML Tomorrow
In a very short span of time, we have achieved so much, but we envision a more enhanced future.
We are committed to expand our business, continue to look for challenging opportunities, and take
the steel manufacturing industry to newer heights in a vibrant, yet socially and environmentally
responsible manner.
We aim at achieving top standards in all areas of our business. We strongly believe that we can
ensure a prosperous future for our customers, employees and other stakeholders by keeping our
focus on quality, safety, customer services and human resource development.
PAKISTAN STEEL INDUSTRY OVERVIEW :
A rapid industrialization worldwide and increasing standard of living all over the world has been
driving the demand for steel. Though lately, we have seen hick-ups because of the financial
crunch worldwide, this certainly is going to be a short-term phenomena and we still see a
sustained growth in steel consumption in the years to come. We all have witnessed that in every
part of the world, transport networks are being expanded to meet the requirement for growth in
urban and semi urban areas. The availability and reliability of modern communication system have
also accelerated the pace of growth. As urban economies are becoming more and more
sophisticated, around 5billion people are expected to be urban dwellers by 2030, which would be
almost 60% of the total world population. This, evidently, will place a huge pressure on the
existing infrastructure and create a tremendous demand for energy, housing, better transport
system, communication networks, sanitation and health care, etc.
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TUWAIRQI STEEL MILL LIMITED
According to the statistics for 2011, the world crude steel production stands at 127 Thousands
Metric Tons around wherein Pakistan’s share is only 0.18 percent. This speaks volumes of a huge
potential of investment and growth opportunity in the steel sector of Pakistan.
Demand/Supply Projections
The annual demand for steel in Pakistan stands at approximately 8.4 million tons, while the
current steel production is about 4.9 million tons per annum. Hence, TSML will be playing a pivotal
role in bridging the gap between the demand and supply of steel in Pakistan.
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Per Capita Steel Consumption
The per capita consumption of steel in United States is around 394 Kg and for an emerging
country like China, it is 338 Kg. The average per capita consumption of the entire world stands at
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TUWAIRQI STEEL MILL LIMITED
around 175 Kg. In comparison, Pakistan has a per capita consumption of steel of only around 38
Kg. If we consider a very modest increase in per capita steel consumption (say to 100 Kg) in the
next 10 years, the steel requirement would be 20 million tons per annum for a population of
around 200 million by the year 2020.
PRODUCTION OF TUWAIRQI STEEL MILL LIMITED :
A MIDREX Direct Reduction Plant is composed of two main facilities: the Shaft Furnace, where
iron ore is reduced, and the Reformer, which generates the reforming gas to be charged into the
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TUWAIRQI STEEL MILL LIMITED
Shaft Furnace. The MIDREX® DR Process is able to use both lumps and pellets as the raw
material and recycles the used gas. Therefore, the process has both low energy consumption and
low environmental impact, making it an environment-friendly process. The direct reduction of the
oxide is carried out on a continuous basis. The iron oxide, fed to the top of the shaft furnace, flows
downward under gravity and is discharged from the bottom in the form of direct reduced iron. The
shaft furnace has two main gas circuits. In the upper circuit, iron oxide is preheated and reduced
by counter flowing reducing gas, consisting of predominantly hydrogen and carbon monoxide. The
lower circuit introduces a mixture of reducing gas and natural gas for the purpose of carburizing
the direct reduced iron. The reducing gas is generated in the reformer by catalytically reforming a
mixture of fresh natural gas and recycled top gas from the shaft furnace. The reformer is a
refractory lined furnace containing alloy tubes filled with a nickel-based catalyst. The feed gas
mixture flows upward through the catalyst bed where it is heated and reformed. The reducing gas
leaves the reformer at near equilibrium conditions, containing 90 to 92 per cent hydrogen and
carbon monoxide. The gas is then directly conveyed to the shaft furnace. The thermal efficiency of
the reformer is greatly enhanced by the heat recuperate. This unit consists of two shell and tube
type heat exchangers in the flue gas duct coming from the reformer. The heat exchangers recover
the sensible heat from the reformer flue gas to preheat combustion air (used in the reformer
burners) to 640 °C and to preheat the process gas (mixture of top gas and natural gas fed to the
reformer tubes) to 540 °C.
The product from module is discharged as COLD DRI and is sent to product silos for safe keeping
and supply to melt shop for melting.
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Direct Reduced Iron
Direct-reduced iron (DRI), also called sponge iron, is produced from direct reduction of iron ore
(in the form of lumps, pellets or fines) by a reducing gas produced from natural gas or coal. The
reducing gas is a mixture majority of hydrogen (H2) and carbon monoxide (CO) which acts as
reducing agent. This process of directly reducing the iron ore in solid form by reducing gases is
called direct reduction.
The conventional route for making steel consists of sintering or pelletization plants, coke ovens,
blast furnaces, and basic oxygen furnaces. Such plants require high capital expenses and raw
materials of stringent specifications. Coking coal is needed to make a coke strong enough to
support the burden in the blast furnace. Integrated steel plants of less than one million tons annual
capacity are generally not economically viable. The coke ovens and sintering plants in an
integrated steel plant are polluting and expensive units. India is the largest sponge iron producer
in the world since 2002.
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Direct Reduced Iron
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Process Flow Chart for DRI
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Product Specifications
MIDREX® Plants produce a high quality, low residual product that dilutes undesirable elements
contained in other charge materials. High metallic iron content, adjustable carbon levels, and
consistent chemical and physical characteristics provide steelmakers broad flexibility in selecting
their furnace charges as well as the ability to produce higher quality steels than possible with
scrap alone.
There are three possible product forms, depending on the application: cold DRI, hot DRI (HDRI),
and hot briquetted iron (HBI). Cold DRI is generally stored for later use in a nearby EAF. HDRI is
discharged hot from the shaft furnace and transported to an EAF for melting. HBI is a briquetted
product that is ideal for shipping to distant consumers.
TSML‘s properly passivity DRI pellets shall be offered for sale in domestic / international market in
the fourth quarter 2009. The selling shall be done either through world renowned steel traders or
direct to industrial users as well. Depending upon customer requirements, the passivity DRI shall
be packed in heavy duty 2 ton polypropylene (PP) sealed bags. Packing in 50-70 Kg polyvinyl
sealed bags is also being considered. The shipment of sealed bags will be in compliance with
Maritime regulations.
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Specifications of DRI
DRI PelletUnit
Expected Specification Minimum Specification
Fe. Total % 92 91
Fe. Metallic % 86 84.5
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Metallization % 93 92
Carbon % 2.5 1.5
Sulfur % 0.003 0.0005 (Max)
Phosphorous % 0.035 0.04 (Max)
Gangue % 4.5l 5 (Max)
Size mm 4 - 20 4 - 20
-5 mm % 3 3
Bulk Densityt/
m31.6- 1.9 1.6- 1.9
Midrex Technology
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Project Status
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In the 1st phase, a DRI plant of 1.28 MTPY capacities is targeted for completion in the 3rd quarter
of 2010. Phase-II of the project, which consists of an Electric Arc Furnace and Continuous Caster
is targeted for completion in 2011. A Pelletization Plant of 2.4 million tons capacity has also been
envisaged in the 3rd phase of the project.
The Government of Pakistan has granted the status of Export Processing Zone (EPZ) to the
project, along with the option to export 100 percent of its production to Pakistan, which ensures a
readily available market for TSML products, apart from ATH plants and neighboring Gulf
countries.
Al Tuwairqi is equally focused on backward integration to the extent of mining and exploring all
possible avenues to get iron ore locally from Pakistan. The target ultimately is that steel of
international quality and standard be produced in Pakistan with a total reliance on local raw
material.
PROCUREMENT PROCEDURES AT TSML:
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Introduction
Procurement Division consists of 4 Departments namely Imports, Commercial/Contracts, Local
Purchase and Stores. Organogram is attached at Annexure 1.
Procurement Procedure in the form of Flow Chart is attached as Annexure 2 for Imports and
Annexure 3 for Local Purchase. The Procurement Procedure for Import and Local Purchase is
generally same except for some differences which are specific to Import or to local purchase. The
procedure given below is common for both types of purchases. Differences are mentioned
wherever necessary.
The procurement procedure starts with receipt of MPR from User Department. Sometimes, Item
code Generation is also required before the issuance of MPR. Therefore, we start the procedure
with the Issuance of Item code:
A. Item Code Generation: This process is handled by the Material Management Cell (MMC) of
the Procurement Department. Here are the activities involved in it:
1. New Item Code Generation Request Form (Form 01) is filled in by the User Department
and singed by User and QC. This form contains category and description of new item
whose codes need to be generated.
2. The form is checked by Procurement Department for its accuracy and completeness.
3. If necessary, User Department is contacted for required clarification and/or discussions.
4. If the item already exists, its code is communicated to the User Department.
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5. If the item is completely new, its code is generated and filled in the same form at the space
provided for this purpose.
6. New Item code Generation is normally completed in 1-2 working days time. Sometimes,
depending upon the number of items, more time may be required to complete the activity of
code generation.
B. MPR Receipt and Processing: For items where system code is already available, the MPR is
directly issued by the User Department. Here are the steps involved in MPR Processing by
Procurement Department:
1. Received MPR is checked in terms of its completeness. Procurement Department has
revised the MPR format to include some new information in the previous MPR.
2. If some data is missing in the MPR, it is not accepted by Procurement and returned to the
issuing department for necessary action.
3. The corrected MPR, when received from User Department, is once again checked and
received in the Procurement Department.
4. After receiving the MPR, it is marked by HOD/Manager to the respective Executive for
inclusion in the list of MPR which are under execution at various stages and for subsequent
processing.
5. Request for Quotation (RFQs) are prepared for various prospective suppliers. Sometimes,
a list of prospective suppliers is also prepared by dealing Executive in consultation with
respective Manager and it is signed by both for record purpose.
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6. Follow up is constantly made via phone calls and emails for submission of Quotation
against our RFQs.
7. Quotations received by various Suppliers are sent to User Department for technical
evaluations. During technical evaluations, some correspondence also takes place between
User Department and the suppliers.
8. Procurement Department and user Department work together to get the right quotation for
technical evaluation.
9. After the technical evaluation is complete, User Department informs Procurement
Department about the technical acceptability of the quotations. This information may be in
the form of a letter or email or a Note.
10. If the provided quotations are not in line with the requirements of the User Department, the
Procurement Department floats fresh RFQs to other Suppliers for new quotations and the
process of technical evaluation starts again.
11.After finalization of the technical evaluation, Procurement Department starts commercial
negotiations with technically compliant suppliers.
12.Commercial negotiations covers topics like price, delivery terms, delivery period, payment
mode, payment terms, Country of Origin issues, Warranty issues and other commercial
topics.
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13.After successful commercial negotiations, Order is finalized in favor of supplier who is
technically compliant and commercially most competitive.
14.A Comparative Statement (CS) is prepared by Procurement Department which gives
details of Quotations, important commercial terms and the recommendation about PO
placement on a particular supplier. In case of proprietary items, no CS is prepared and the
PO is finalized on the basis of single quotation.
15.The CS is initialed by the representatives of Procurement Department and User
Department.
16.PO is also prepared based on CS and initialed by the representatives of Procurement
Department and User Department. PO is sent to finance department for cost booking.
17.The CS along with the PO is then sent to the Pre-Audit department for Audit purposes. If
the Audit Department has some observations, the file is sent back to the Procurement
Department for removal of observations and sending the file back again to the Audit
Department.
18. If the case is clean, the Audit department validates the case and sends the file back to the
Procurement Department for further processing.
19.Procurement department puts the file forward for the signatures of the Signing Authority as
per signature mandate.
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20.POs up to PKR 500,000/- or equivalent in other currencies, is signed by the Head of
Procurement or other persons (senior Manager or Department In-charge) as and when
authorized by the Director Projects.
21.POs up to US$ 200,000/- are signed by the Director Projects.
22.POs over and above US$ 200,000/- are signed by the Director Projects on behalf of Vice
Chairman of Altuwairqi Holdings. Post approval is sought from the Vice Chairman later on.
Sample Material Requisition Slip
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C. Execution of Purchase Orders: After the PO is signed, it is processed further as follows:
1. The PO is sent to the Supplier or his Agent through Courier, Email Attachment or is
personally collected by the suppliers’ representatives.
2. In most cases of foreign suppliers, Original POs are not required to be sent to the supplier.
Email attachments are sufficient.
3. Suppliers’ acknowledgement is sought via email or a signed copy of the last page of the
Terms and Conditions where proper space is provided for suppliers’ signatures.
4. In some cases, formal Order Acknowledgment is not received but PO execution starts
which is proved by some other indications like processing of advance payment, drawing
submission or the likes.
5. After having received PO acknowledgement in any form, Procurement Department
processes advance payment if agreed in the Payment Terms. Advance payment over and
above Rs. 200,000/- is paid only against Bank or Insurance Guarantee. Advance payments
of lesser amount are released without Guarantee. Guarantees are accepted by renowned
Banks and Insurance companies only.
6. In case of Bank/Insurance Guarantees, Procurement Department coordinates with Finance
Department to arrange Genuineness Certificates from the Bank or Insurance Company
who has issued the Guarantee.
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7. After Genuineness confirmation, suppliers Invoice along with copies of PO and Guarantee
is submitted to Internal Audit Department for validation.
8. Internal Audit Department validates the case as per procedure mentioned in B-17 & 18
above and sends the case to Finance Department for release of advance payment.
9. Original Guarantees are kept by the Head of Legal Department while copies are retained
by Procurement Department.
10. After advance payment, the PO execution starts in full swing and a lot of activities start
simultaneously which includes drawing submission, technical reviews, discussions on
delivery schedule, any commercial or technical clarifications, any changes in the scope of
PO, LC related issues, etc. Drawing submission is not mostly related to local
purchase.
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Sample of Purchase Order (Oracle Generated)
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Terms and Conditions
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D. LC Opening/Handling and Material Receipt: This section describes how LCs are opened
and handled. Information given hereunder do not relate to Local Purchase.
1. In POs where payment Mode is LC, Procurement Department asks the supplier to issue a
Proforma Invoice (PFI) which gives details items to be purchased, pricing, delivery terms,
payment terms etc.
2. The PFI is checked by Procurement Department and, if found complete, forwarded to
Commercial Department who prepares and forwards the case for LC opening to the Bank.
3. Commercial Department arranges a draft LC which is checked by Procurement Department
and forwarded to the supplier for checking and approval. Any changes and/or modifications
suggested by the supplier and agreed by Procurement/User Department is incorporated in
the draft and the Bank is accordingly advised by Commercial Department to issue the LC.
4. Once LC is established, the supplier is informed and a copy is sent to him via email. The
supplier is also advised to collect the original from his bank.
5. When the time of shipment comes close, LC particulars are once again checked specially
the validity dates. If the LC is no more valid for shipment or negotiations, it is amended in
consultation with Supplier.
6. If, during the execution of Order, some changes take place, like LC value or equipment
specifications, necessary amendments are made in the LC in consultation with the Supplier
and Commercial/User Department.
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7. For CFR deliveries, supplier is responsible to arrange shipment and pay freight up to
Karachi Port.
8. For Ex-Works or FOB deliveries, shipment arrangements are made by Commercial
Department in coordination with Procurement Department.
9. Once the shipment is effected, Procurement Department is responsible to arrange clean
and correct shipping documents from the supplier, through his bank. The supplier sends
the documents, through his bankers, to our Bank who has opened the LC ( LC opening
Bank).
10.The LC opening Bank informs our Commercial Department along with copy of the received
shipping documents. Commercial Department sends copies of shipping documents to
Procurement Department for checking and submission to Internal Audit Department for
payment validation, if no discrepancies found in the documents.
11.Finance Department issues payment authorization to the Bank who credits supplier’s
accounts and debits our Account. Our Bank then endorses the Original Shipping
Documents and hands over them to Commercial Department who uses these Documents
for Custom Clearance.
12. If discrepancies are observed in the shipping documents, they are accepted by
Procurement Department (if minor in nature) and the documents are then sent to Internal
Audit for payment validation and onward submission to Finance department.
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13. If discrepancy observed in the shipping documents are major, our Bank is advised to send
back the documents to the Supplier’s Bank for correction and re-submission.
14.After Custom Clearance by Commercial Department, the consignment is moved to the job
site with prior intimation to Procurement Department, User Department and Stores.
15.After the arrival of consignment at site, User Department physically checks the condition of
consignment for any damages etc.
16. If damage is found, store department informs Procurement Department who arranges
insurance survey through Insurance Company and, if damage is material, applies for
insurance claim.
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Sample of Letter Of Credit
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E. Issuance of GI/QC and GRN: After the arrival of consignment at site, following activities take
place: (these activities are common for Import and Local Purchase except as explained
below)
1. When the consignment enters the job site, Gate Inward (GI) is prepared by Stores
Department which serves as proof of entry into the Job Site.
2. User Department then coordinates with QC department for the checking of quality of
Equipment/Material received. If the quality is found satisfactory, QC Report is issued which
is signed by representatives of User Department and Quality Department.
3. If the material is defective, Rejection Note is prepared and the Supplier is asked to take the
material/equipment back. In case of partial rejection, the accepted material is kept and the
rejected material is returned.
4. Based on QC Report, Store Department prepares Goods Receipt Note (GRN) and sends a
copy to Procurement Department for record.
5. In case of LC, the GRN is sent to Internal Audit and Finance Department, along with other
related documents, for record purpose and closing of case. This also closes the case in
Procurement Department.
6. In case of local purchase, where payment is to be made after delivery, GRN is sent the
Internal Audit and Finance Department, along with other related documents, for release of
payment.
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7. In case of local purchase where payment has already been made in advance, GRN is used
as per point E-5 above, for adjustment of advance.
Purchase Process at Project Department
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Organogram
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Process Flowchart-Imports
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Process Flowchart-Local Purchase
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INVENTORY PROCEDURES AT TSML:
Inventory management is one of the most important managerial activities. TSML shall have its
own mines and queries in Pakistan. The raw material inventory includes material from its own
sources as well as purchased from other countries such as Bahrain and Brazil such as Oxide
Pellets. Raw material inventory therefore lies both at work and its place of extraction. These are
transported to works both by road and rail.
To maintain the minimum required inventory such as DRI and Billets is not an easy task. There
are many reasons for each different organization as to what the quantity be maintained. TSML raw
material consists of mainly Iron Ore of 63.5% Fe, Oxide Pellets and Direct Reduced Iron of 66%
Fe. And in the semi finished goods TSML shall have Billets and Slabs which are widely used by
Re-Rolling mills mostly located in Lahore. TSML shall have its own transportation system which
helps in carrying the material from Interior Sindh and Balochistan for its Steel Mill.
Each type of production department maintains separate inventory level. TSML shall maintain
different types of inventory i.e. Raw Material, Work in Process and Semi Finished goods.
For valuation of inventory TSML shall use FIFO method and for ordering, they use EOQ method.
FIFO is an acronym for First In, First out, an abstraction in ways of organizing and manipulation of
data relative to time and prioritization. This expression describes the principle of a queue
processing technique or servicing conflicting demands by ordering process by first-come, first-
served (FCFS) behavior: what comes in first is handled first, what comes in next waits until the
first is finished, etc.
Economic order quantity is the level of inventory that minimizes total inventory holding costs and
ordering costs. It is one of the oldest classical production scheduling models. The framework used
to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. There will
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not be any loss by either way. Any change in one or more of them will change the EOQ of that
item.
To find out EOQ; the formula is =
Where; Q* is independent of P; it is a function of only S, D, H.
Policies shall be maintained by TSML for Inventories
Raw material and semi finished products produced and purchased by TSML are carried at
lower of cost.
Work in Progress is carried at lower of cost and net realizable value.
Iron ore and other raw material shall be purchased by the company are carried at lower of cost
and net realizable value.
Store and spare parts are carried at cost.
Cost of inventories is generally ascertained on the ‘weighted average’ basis .Work in progress
and semi finished products are valued on full absorption cost basis.
TSML has its own Electric Plant, Water reservoir and gas preserver from Sui Southern Gas for
regular production.
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CRITICAL ANALYSIS:
Procurement department at TSML is responsible for the purchase of different goods and
acquisition of services through tenders. Process at procurement department is very simple.
When Material Purchase Requisition Slip (MPRS) comes to procurement department then they
issues Request for Quotation (RFQ) to the various suppliers for the quotations. The technical
committee approves the quotation by consulting with the Incharge DRI plant.
Some of the most important elements need to be revise are as follows:
Annual plans containing basic information on upcoming procurements (over $2M), to be
submitted by operating departments to a Procurement Strategy Committee not by
Technical Cell division;
Review of plans to identify those procurements, generally over $20M, for which
consideration by a procurement review committee (PRC) is needed not by consultant
department because they are not so much aware of the import process and finance as well.
Early notification to the Procurement Review Secretariat of procurements not in the plan,
with individual review at the request of any committee member in this way transparency
exist;
Statement of expected benefits and monitoring plan to be prepared by the member
requesting PRC review so that process can be smoothen;
Analysis of costs (including downstream costs) and risks where the operating department
considers them significant (a detailed analysis of costs and benefits is not required where
all parties agree that national objectives can be achieved with no material increase in cost
or risk to the operating department);
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Treasury Board approval of procurement strategies prior to release of the request for
proposals where costs or risks are at issue, or where it is proposed to assign evaluation
points to national objectives benefits; and
Monitoring and reporting through compliance management department and strictly checked
by procurement committee.
TSML shall give Tender announcements in the newspaper which gives competition.
At stores TSML shall have RFID systems so that inventory can be located easily with their
quantity.
In order to supply raw material from jetty TSML shall have Conveyor Belts so the inventory
of Iron Ore and Pellets can be maintained and regular supply in case of strike.
Implementation of ABC Analysis shall be in TSML so that material inventory can be
controlled in more organized manner.
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PROCUREMENT REVIEW PROCESS
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RECOMMENDATIONS:
As TSML project is underway and the procurement procedures have been made in order to run
the system in smooth manner but there are some recommendations that TSML shall implement in
their procurement and inventory which are as follows:
The ABC analysis is a business term used to define an inventory categorization technique
often used in materials management. It is also known as Selective Inventory Control. It
stands for Always Better Control. Policies based on ABC analysis: A ITEMS: very tight
control and accurate records B ITEMS: LESS TIGHTLY CONTROLLED and good records
C ITEMS: simplest controls possible and minimal records
The ABC analysis provides a mechanism for identifying items that will have a significant
impact on overall inventory cost, while also providing a mechanism for identifying different
categories of stock that will require different management and controls.
The ABC analysis suggests that inventories of an organization are not of equal value. Thus,
the inventory is grouped into three categories (A, B, and C) in order of their estimated
importance.
'A' items are very important for an organization. Because of the high value of these ‘A’
items, frequent value analysis is required. In addition to that, an organization needs to
choose an appropriate order pattern (e.g. ‘Just- in- time’) to avoid excess capacity.
'B' items are important, but of course less important, than ‘A’ items and more important
than ‘C’ items. Therefore ‘B’ items are intergroup items.
'C' items are marginally important.
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ABC analysis categories
There are no fixed thresholds for each class, different proportion can be applied based on
objective and criteria. ABC Analysis is similar to the Pareto principle in that the 'A' items will
typically account for a large proportion of the overall value but a small percentage of number of
items. Example of ABC class are:
‘A’ items – 20% of the items accounts for 70% of the annual consumption value of the
items.
‘B’ items - 30% of the items accounts for 25% of the annual consumption value of the
items.
‘C’ items - 50% of the items accounts for 5% of the annual consumption value of the items.
Another recommended breakdown of ABC classes:
1. "A" approximately 10% of items or 66.6% of value
2. "B" approximately 20% of items or 23.3% of value
3. "C" approximately 70% of items or 10.1% of value
Implementation of Mayer Scale
Mayer Scale Manager is an integrated scale receiving application that links directly with your scale
hardware to reduce the keying of weights and the possibility for scale related fraud.
The Scale Manager application is optimized for high traffic yards dealing with retail or cash trade
or industrial accounts and utilizes keyboard based shortcuts to enable operators to quickly weigh
vehicles in and out of the yards.
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With additional features such as automatic price and freight allocation, cheque printing, multiple
weighing functionality and the option of having multiple weigh stations, Scale Manager can
provide increased productivity to the scale weighing operation.
All in all, Mayer Scale Manager is a comprehensive point-of-sale and point-of-purchase
application for quick and east scale receiving and shipping. Read on:
Built in resilience through off-line data store. Keeps scale running and collecting valuable
information even while main systems are off-line.
Handles sales and purchase transactions
Single or multi-stage process.
Multiple weighing.
On site or "in queue" vehicle listing ability.
Unlimited commodities per transaction.
Trackable, independent vendor descriptions for each commodity line.
Allows both account and non-account transactions for large vendors and "one-off" peddler
trade.
Manual or automatic price entry, contract or no-contract.
Allows weight or amount deductions per commodity line.
Material Movements and Sorting.
Baling.
Easy to use windows interface.
Single key searching for vendors, customers, freight carriers, commodities and contracts.
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Option of linking directly to scale for direct interface of scale weighing, no manual weights
entered.
Multi-line or grades per transaction.
Eliminates mistakes and possible fraud.
Live, real-time or delayed information.
Full event log per transaction, identifies changes and strange events.
Fast cutting of checks for materials, freight and other services right at the scale.
Creates full documentation including purchase and sale tickets and inspection documents.
All produced documents i.e. tickets, bills of lading etc. customizable by the customer.
RAW MATERIAL TO BE EXTRACTED:
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CONCLUSION:
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Tuwairqi steel mill comprises of different departments at SITE and Head office which are playing
their vital role for the operation of DRI plant. Departments of TSML at site are significantly
interconnected with each others in stipulations of vocation and comprehension. TSML DRI plant
has numeral of abundant advantages as it is environmentally friendly and operates with the
natural gas. TSML is using an ITMK-2 (Midrex) process which is initial of its category in Pakistan.
Reduction furnace height of DRI plant is 107 meters. DRI plant is equipped with 6.5 meter
diameter Midrex shaft furnace. The prospect of DRI in Pakistan is flamboyant as the demand and
supply gap of steel exists. With the implementation of ABC analysis at TSML in Procurement and
inventory department company can easily know which raw material they have to acquired.
As TSML have already implemented FIFO and EOQ process which shows that there procedures
are well defined but more work has to be done for smooth process. The procurement procedure
starts with receipt of MPR from User Department. Sometimes, Item code Generation is also
required before the issuance of MPR.
REFERENCES:
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www.tuwairqi.com.pk
Tuwairqi Procurement Department.
Tuwairqi Inventory Department.
www.google.com
www.yahoo.com
Wekipedia.com
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