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Reactive sourcing Knowledge based sourcing Strategic sourcing Approach Negotiation based buying Total cost of ownership Win – Win relationship Prime motiveAvoid.

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Presentation on theme: "Reactive sourcing Knowledge based sourcing Strategic sourcing Approach Negotiation based buying Total cost of ownership Win – Win relationship Prime motiveAvoid."— Presentation transcript:


2 Reactive sourcing Knowledge based sourcing Strategic sourcing Approach Negotiation based buying Total cost of ownership Win – Win relationship Prime motiveAvoid stock outs Consolidate & leverage volume buy Value creation Skills Commercial, follow up Professional, team building Interpersonal, Coaching StyleIndividualisticCross functional Collaborative working Nature of contract One timeMedium termLong term

3 Complexity of commodity Critical items: Related to safety, health, ergonomics & statutory compliance Core items: Items that directly impact throughput General items: Standardized items that creates congenital working environment Commodity items: Items that play important role in reducing downtime of plant and machinery Scope for Saving

4 Spend Analysis Formation of Cross functional team Internal Analysis External AnalysisCommodity Strategy Sourcing Lever Approach Supplier Value management Contract

5  Leverage volume  Buying solutions not products  Third party solution provider  Direct purchase from manufacturer  Optimization of specifications  Long term contracts  Supplier managed inventory  Total cost of ownership  Life cycle costing  Conversion route  Joint improvement initiatives  Reverse auctions  Free delivery at site  Leveraging payment terms  Diversifying risks

6  Value-creating partnerships (win-win) between customer & vendor  Optimizing costs and resources in the entire value chain  Understand each others requirement & eliminate inefficiency, assumptions in the chain & align the supplier to the end customer’s requirement  Establish communication channels at all levels to leverage knowledge and resources for mutual benefit  Create a platform for continuous improvement  Thorough understanding of entire supply chain can be developed on: › Cost base of Supplier › Usage Cost: Product specification, design, new product development, cycle time reduction etc. › Impact of technology › Quality › Bottlenecks › Future requirements of Buyer & Supplier  Benefits: › Overall cost base reduction at Buyer and Suppliers end › Better understanding of each other requirements › A joint working atmosphere

7  Background: › Spend: Rs. 400 – 500 Lacs › GHCL - SA plant handles approx. 10000 MT of bulk material – daily. Material handling includes  Feeding of RM in SA plant and its internal movement  Proper storage of excess material to ensure optimum utilization of available storage space  Loading of vehicles to shift bulk material like ash, undersize Limestone, etc. out of plant › Part of bulk material is handled using mechanized system (Truck tipplers, conveyors, etc.) and part is handled using hired equipments viz. loader, dumper, TC, dozer, excavator, etc.  Challenges: › In spite of having full fledged mechanized system to cater for 100% RM requirement of plant, Sizable amount of material was handled using hired equipments due to variety of reasons viz.  Irregular receipt of RM during the year as well as during the day  Requirement to store large volume of RM for usage during monsoons, festival, etc. due to scarce supply › Spend followed uniformly upward trend due to dependence on diesel prices, manpower cost equipment capital and maintenance cost

8  Methodology adopted: › Formulation of cross functional team › Graphical depiction of MH activity: Multiple re-handling observed due to lack of online storage facilities, scope for improvement in mechanization, scope for contract re- engineering type which was hourly based, etc. › External analysis – Study of similar industries practices: Each unit scrutinized had their unique contracts for handling bulk material. As is implementation in our system was not feasible › Hypothesis compiled for further consideration, which included –  Conversion of hourly based payment contracts to MT based contracts,  clubbing of activities  contract consolidation to improve equipment utilization, etc.  create online storage facility

9  Conclusion / Outcome: › Indirect tonnage measuring method adopted for tonnage based contract. Approx. 87% of handling activities are being carried out on tonnage basis which was about 43% earlier. Benefits - reduction in requirement of continuous supervision, simplified operations and increased accountability of contractor › Activities were consolidated in Sizer operation for better equipment utilization and hence derive cost benefits › Contracts renegotiated based on alternate quotations received from experienced outside contractors. Though original contractors were not changed, to avoid local disturbance › Proposals for creation of Online storage facilities (storage on top of conveying system) are generated & may be implemented post budgetary approvals

10  Total painting area - 8.50 Lacs Sq. M (approx)  Current Scenario: › PU base system with Guarantee: 1.5 yrs (max) based on corrosion audit conducted in yr 2003-04 by CECRI › 25 paint schemes were applicable across the plant › Non-availability of Quality Vendors for polyurethane based paint application  Hypothesis: › Adopting Epoxy based paint system instead of Polyurethane › Reducing no of schemes of paint application across the Plant › Reduction of Life Cycle cost by increasing guarantee period  Synopsis: › Corrosion Audit was conducted AkzoNobel & report submitted with latest painting solutions › Trial order to M/s Akzo Nobel for highly corrosive area with Epoxy base system with guarantee of 5 yrs › Division total plant area in two parts based on corrosiveness,  Highly corrosive ( 1.5 L Sq. M area)  Moderate corrosive (7 L Sq. M area) › Corrosion audit conducted by renowned vendors to design their own painting schemes with min. 3/5 yrs guaranteed life › 8 schemes were finalized post technical evaluation

11 Total Plant Painting Area (approx 8.5 L Sq.Mtr.) Corrosion severity Surface Preparation Shade Dry Film Thickness No of coat Guarantee (yrs) Moderate (approx 7.0 L Sq. Mtr) Manual Cleaning Coloured35053 Black40043 Sand Blasting Coloured30055 Black35045 Highly Corrosive (approx 1.5 L Sq. Mtr) Manual Cleaning Coloured45065 Black50055 Sand Blasting Coloured33065 Black38055 M/s Kansai Nerolac was finalized for long term contract based on life cycle cost instead of per liter cost of paint Benefits: Total Ownership of Paint Application was transferred to Vendor Reduction in Inventory level Savings in Application Cost & Time

12  Scenario: › Annual Spend: Rs 110 lacs(approx) › No of Vendors: 4 Nos (FAG,SKF, NTN, Timken) › Annual Rate Contract with Authorised Dealer of FAG & SKF  Challenges: › Transaction with high number of Vendors › High Lead time in procurement › Price List based items (Less Discount was offered by Authorised Dealers) › Higher Inventory level was maintained for satisfying frequent Maintenance requirement  Remedial Actions Taken › Direct OEMs (SKF& FAG) invited to study our consumption pattern and submit offer for long term contract. › Contract was finalized with SKF, with VMI at plant  Benefits › Discount Structure was revised from 25% to 27% on list price with 5% TOD › VMI was introduced without any additional cost. › Better Discount and T&Cs were extended to other units of GHCL (Vapi & Madurai)

13 CommodityCentral themeBenefits Conveyor belts (Rs. 100 L pa) Life cycle enhancement Better life span by introducing renowned Vendors like Phoenix Reduction in prices of existing Vendor due to competition Better life guarantee was achieved for critical applications Lubricants (Rs. 165 L pa) Standardization of vendor across divisions Vendor base reduced to one (i.e. IOCL) Better discount – in lieu of higher volume Low inventory – Reduction in variety of products Valves (Rs. 105 L pa) Requirement specific product Guaranteed life cycle Reduction in prices of existing Vendor due to competition Better life guarantee Reduction in Annual procurement by refurbishment of old valves Reduction in inventory by introduction of VMI at plant/supplier’s end Binder (Rs. 1500 L pa) Alternate vendor development Three new vendors meeting basic specifications are enrolled Uninterrupted supply, competitive pricing

14  Gathering information during External Analysis – due to unwillingness of Industry to share sourcing information  Inherent resistance to change  Implementing changes that are locally sensitive  Cost & time involved in experimentation  Confidence building exercise within team  Clash of priorities – Development exercise vs Production


16 Sizer plantSea water pumps BiCarb FilterPretreatment & RO plant Lime KilnSteam Turbine Generator Capacity Enhancement Projects Pre-heater & Condenser Absorber & Scrubber Plate Heat ExchangerRotary Breaker Replacement requirements Coal Shed with coal handling system Settler tank Mother liquor tank Infrastructure development Sized product for Procter & Gamble Product development Briquette drier LSA Cooler Process re-engineering Equipments related to environment & Safety systems (viz. Bag filters, measuring instruments, etc.) Statutory compliance

17  Average project spend per annum Rs. 5000 Lacs  Standardised project cost estimation format to incorporate indirect expenses for accurate project budgeting  Continuous review of project progress, project cost and taking corrective measures to minimise delays / cost overruns  Established practice of finalising high value equipments in competitive environment, as against practice of dealing with single vendors. Hence deriving sizable cost benefits  Introduction of alternate vendors has resulted in savings  Establishing practice of deriving breakdown costing in case of technical preference for procurement of technological equipments from single vendors  Incorporation of Project MIS report in SAP with budget cap  Usage of SHIS for duty benefits



20 ProjectChallengesTakeaways / Achievement P&G Project Size of product Very stringent timeline Adamant approach of German screen supplier – on price & delivery Delay in supply of one of the equipments Integrated cross functional teamwork resulted in timely completion of project Project completed within budget Extensive expedition measures for delayed equipment BiCarb filter Need to ensure E&C schedule to match ASD Single party preference Last phase material rejections at vendors end Logistics hassles Finalized main equipment in competitive environment Timely delivery of main equipment at site to dovetail with ASD schedule

21 ProjectChallengesTakeaways / Achievement LSA Cooler Single party preference for main equipment as well as accessories Mid project capacity enhancements for accessories Main equipment finalized based on breakdown costing Accessories finalized in competitive environment Usage of SHIS for ED benefits Briquette drier Single party preference for main equipment + alternate offers received were exorbitantly priced Development project Main equipment finalized based on breakdown costing Direct expedition at suppliers sub vendors during execution phase – to minimize further delays Usage of SHIS for ED benefits

22 ProjectChallengesTakeaways / Achievement Pre-heater & Condenser Single party preference for main equipment Commencement of project prior to financial arrangement Main equipment finalized based on breakdown costing / RM price trends Restructuring of payment terms to match cash flows Absorber & Gas Scrubber Single party preference for main equipment Exorbitant price rises quoted by vendors as against past purchases (about 2 years back) Main equipment finalized based on breakdown costing / RM price trends Both main equipments finalized at prices lower than previous PO

23 ProjectChallengesTakeaways / Achievement Pretreatment, RO plant + RO Skid Dire need of water supply due to bad monsoon in previous year – hence very stringent time lines Mammoth civil work involvement, beyond capacity of local contractors Far sightedness of plant team noticing delay in project and hence timely ordering and commissioning of RO skid Finalization of turnkey contract with supplier, including civil work, agst local pressures Lime Kiln Single party preference for main equipment Major delay in supply of field conveyor Main equipment finalized based on breakdown costing and re-distribution of scope Usage of SHIS for ED benefits

24 ProjectChallengesTakeaways / Achievement 12.5 MW Steam Turbine Single party preference for main equipment Requirement of long lead time material during hookup Ensuring phase wise material deliveries considering progress of project Civil contract finalization amidst local pressures Single party preference for various service contracts Reluctance of BHEL for usage of SHIS scrip & hassles during execution Vendor identification & approval for first time procurement Finalized main equipment in competitive environment considering pros & cons for bringing in new supplier Integrated Teamwork for ensuring material delivery during ASD – hookup Expedition and delaying material delivery to meet phase wise requirement Usage of SHIS scrip for major supplies from BHEL and direct liasoning with excise range for same Joint efforts by procurement & plant team for first time items


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