Project

On
Managing Information Systems

(A STUDY ON INVENTORY MANAGEMENT AND E-

PROCUREMENT SYSTEM AT NLC INDIA LIMITED,
NAVRATNA PSU- GOVT OF INDIA UNDERTAKING)

Submitted to

Prof. Dr. Himanshu Joshi

Submitted by

DEVIKA NAIR (19XPGDM04)

OPPILIAPPA B.G. (19XPGDM10)
POOJA BORAH (19XPGDM12)
SIDDHARTH UPADHYAY (19XPGDM23)

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 Contents

Introduction: ........................................................................................................................................... 3
VISION STATEMENT: ........................................................................................................................... 3
MISSION STATEMENT: ........................................................................................................................ 3
REASON FOR SELECTING THE ORGANIZATION AND OBJECTIVE OF STUDY: ........................................... 4
FUNCTIONS, PRODUCTION CAPACITY AND RESOURCES OF NLCIL: ........................................................ 4
MATERIALS MANAGEMENT AND E-PROCUREMENT: ............................................................................. 5
IMPORTANCE OF PURCHASING ACTIVITY IN NLCIL: ............................................................................... 5
WORKFLOW DIAGRAM OF PROCUREMENT PROCESS IN NLCIL.............................................................. 6
ROLES AND RESPONSIBILITIES OF PEOPLE INVOLVED IN IMPLEMENTING IS: ........................................ 6
ACTIVITIES AND CONDITIONS BEFORE IMPLEMENTATION OF IS: .......................................................... 7
IMPLEMENTATION OF OLIMMS IN NLC .................................................................................................. 7
WORKFLOW AUTOMATION IN OLIMMS ................................................................................................. 8
OBJECTIVES IN INTRODUCING e-PROCUREMENT IN NLC ....................................................................... 9
E-PROCUREMENT PROCESSES: ............................................................................................................... 9
Other support processes:…………………………………………………………………………………………………………………10
BENEFITS OBTAINED BY IMPLEMENTING IS........................................................................................ 166
TRANSPARENCY :................................................................................................................................. 199
SECURITY AND AUTHENTICATION: ..................................................................................................... 199
INTELLIGENT REPORTING AND BUSINESS INTELLIGENCE: .................................................................... 20
ACHEIVEMENTS OF BUSINESS OBJECTIVES:.......................................................................................... 21
CONCLUSION:........................................................................................................................................ 22

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1. Introduction:

NLC INDIA LIMITED formerly known as Neyveli Lignite Corporation is a Mining

cum Power Generation Public Sector enterprise, under ministry of Coal. The
company was started in the year 1956 at Neyveli in Cuddallore district of Tamil Nadu
(200Kms south of Chennai). Neyveli is well known for its huge reserves of Lignite
an inferior of coal. Over the years, the Company has grown into an Integrated Project
in consisting of 3 Mines, 6 Thermal Power stations and Solar power project in
Neyveli. Outside Tamilnadu, this Company is having a Thermal Power Plant and
Opencast Lignite Mines in Barsingsar, Rajasthan State,. Also the firm have done JV’s
with Govt. of Tamil Nadu, Uttar Pradesh and Odisha for Operation of coal based
thermal power Plants. The firm is also diversifying its energy generation through solar
and wind power plants. The Company attained MINIRATNA Status in the Year 2004.
With continuous untiring efforts and everlasting performance, the company attained
the prestigious NAVRATNA Status in the Year 2011.

2. VISION STATEMENT:

To emerge as a leading Mining and Power Company, continue to be a socially responsible

company and strive for operational excellence in Mining & Exploration.

3. MISSION STATEMENT:

To play an active role in society and be sensitive.

 To strive towards greater cost competitiveness and work towards continued

financial strength.
 To continually imbibe best practices from the best Indian and International
organizations engaged in Power generation and Mining.
 To be a preferred employer by offering attractive avenues of career growth
and excellent work environment and development of human resources.
 To play an active role in society and be sensitive to emerging environmental
issues.

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4. REASON FOR SELECTING THE ORGANIZATION AND OBJECTIVE OF STUDY:

The firm NLC INDIA Limited is a governmental organization and the group was interested
in study of implementation of a Information system in a public sector firm. Any
implementation of a new system involves a paradigm shift in operating procedure and
generally it takes time and there will be lot of hindrance in implementing of such system
in governmental organizations. However this system was implemented within 2 years and
firm have achieved a dramatic cost and time reduction in procurement. Also the data was
available and there was a possibility of interaction with NLCIL employees who were in
Executive PGDM batch and with one of managers over phone who was a part of
implementation of OLIMMS and e-procurement.

5. FUNCTIONS, PRODUCTION CAPACITY AND RESOURCES OF NLCIL:

The production capacity of Lignite from the mines owned by NLC India Ltd in Neyveli,
Tamil Nadu and Barsingsar, Rajasthan is 30.6 MTPA. These mines are open cast mines
and mining activities are done by using Special mining equipment’s such as Bucket Wheel
Excavators, Spreaders, Mobile Transfer Conveyors and other conventional mining
equipment’s like shovels, dumpers etc.

NLC India Ltd is operating Lignite fired thermal power plants in Neyveli and
Barsingsar with installed capacity of 3140 MW, a 1000 MW coal fired thermal power
plant at Tuticorin Tamil Nadu, 1000 MW installed capacity of Solar and 51 MW of
Wind based power plants.

Thus having a huge asset base the firm used to procure consumables and spares (
electrical and mechanical) of worth 1500 crores every year. The firm also owns a large
township, recreation clubs, hospital facilities for benefit of its employees for which the
materials is required to be procured. Thus NLC India Ltd holds a huge inventory base
and inventory management systems and e-procurement system for procuring and
managing inventories.

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6. MATERIALS MANAGEMENT AND E-PROCUREMENT:
The Materials Management Department is one of the service units, which caters to the
needs of the standard stock materials like consumables, spares and plant & equipment
of all divisions of NLCIL for their smooth functioning. Materials management can
be defined as the function responsible for the co-ordination of Planning, sourcing,
purchasing, moving, storing and controlling materials in an optimum manner so as to
provide a pre-determined service to the user department at an optimal cost. In order
to carry out all the functions of the Materials Management Department more
effectively and efficiently in a transparent manner, a digitalization system called
ONLINE INTEGRATED MATERIALS MANAGEMENT SYSTEM
(OLIMMS) has been implemented in MM Department from the year 2005.
Purchase activities, starting from indenting of materials by the users of various units
of NLCIL till making payment to the vendors, have been incorporated in the
OLIMMS, which has been developed based on the procedures and policies which
were being followed hitherto. Following the introduction of OLIMMS, E-
procurement was also implemented from the year 2007 and Reverse Auction was
introduced from the year 2012 .

7. IMPORTANCE OF PURCHASING ACTIVITY IN NLCIL:

One of the primary functions of the Materials management is Purchasing. The
principal objectives of Purchase Department can be summarized as the procurement
of right quality materials in right quantity and in right time, from the right source, at
right price in a transparent and time bound manner.
Purchasing involves the activity directed towards securing the materials required for
use in the organization. The effective functioning of the organization hinges on the
effective functioning of purchase department, as it has the higher responsibility of
making timely deliverables to the departments concerned. If any delay occurs in the
procurement process or inventory management it may lead to loss of production in
the mines and generation loss thermal power station of approximately 10-12 crores a
day. Also the medicines required at General hospital under control of NLCIL is
procured through purchase department. Any delay in receipt of medicines/ life saving
drugs would cause loss of lives.

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 7.1 WORKFLOW DIAGRAM OF PROCUREMENT PROCESS IN NLCIL

8. ROLES AND RESPONSIBILITIES OF PEOPLE INVOLVED IN IMPLEMENTING IS:

The first person of the company is Chairman cum Managing director (CMD) and there
are 5 directors under CMD control who take charge of any major shift in
organizational activities. The directors are namely Director Power ( Controller of all
thermal power stations), Director Mines (Controller of mines and lignite production
activities), Director Planning & Projects (Controller of MM, Contracts, Project &
Business development etc), Director Finance and Director HR.

CMD and Director P&P’s role is major in implementing the Information system. The
necessary approval was given by them on going through the Pre feasibility and
Detailed project report and in concern with other directors.

Under Director P&P, there is MM department and Corporate computer department.

Both the departments were controlled by separate unit heads (Chief general managers)
who along with their technical secretaries conducted a feasibility study before
implementing the Information system. Initially a need analysis was conducted by a
team ( Deputy general managers & Chief managers) under the control of unit heads.

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 The team visited various departments such as Finance, Hospital, Mines & thermal
division users, Stores, Purchase department etc and collected information regarding
the delays and loss of cost in various departments under the value chain.

Accordingly the needs of all departments were categorized from most important to
least important and a detailed workflow from starting to end were submitted to the
director for approval. Accordingly the purchase department officials have modified
the purchase manual in line with the new system.

9. ACTIVITIES AND CONDITIONS BEFORE IMPLEMENTATION OF IS:

Upto 2005 all the above activities were carried out using physical documents with batch
processing in computers. Because of the usage of Physical documents, the personnel
had to shuttle between various Departments geographically distributed over an area of
50 Sq.Kms resulting in enormous delay.

The vendors had to come to Neyveli for attending Negotiations which delayed the
procurement process by10 to 15 days. The procurement lead time was around 200 days
resulting in higher costs.

On receipt of Material, the activities at Stores like Check Measurement and acceptance
of Material, for issue of Inspection cum Receiving Report (IRR) were also delayed
resulting in delayed payments to Vendors. The payments were made by cheque which
also delayed the realization of the amount by the Vendors because of paper work.

10. IMPLEMENTATION OF OLIMMS IN NLC

NLC engaged IIT Kharagpur, a primer educational institution,

for developing and implementing Online Integrated Materials Management System
(OLIMMS) which was implemented OLIMMS in June 2005 followed by
implementation of e-Procurement in 2007. Around 95% of the tenders are processed
through e-Procurement except a few Import and price agreement tenders.

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10.1 WORKFLOW AUTOMATION IN OLIMMS

OLIMMS workflow is designed on procedures as per NLC Purchase Manual and the
delegation of powers stipulated by NLC Management. Around 4000 users associating
with various activities of OLIMMS, approve documents online. The documents like
Enquiry, P.O, IRR on Competent Authority approval gets hosted in the website
automatically, without human intervention, ensuring failsafe delivery of documents.
This e-procurement system helps in Effective Tracking of documents at various stages
of approval. Effective monitoring by way of MIS reports for completion of various
activities against the prescribed norms is an outcome of workflow automation.

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 10.2 OBJECTIVES IN INTRODUCING e-PROCUREMENT IN NLC

 To achieve considerable reduction in lead time for procurement.

 To have greater transparency at every stage of Procurement.

 To be in line with the guidelines stipulated by Chief Vigilance Commission (CVC).

 To achieve a paperless office with effective workflow management for all the
activities in Materials Management.

 To have more vendor participation by expanding the Vendor Database.

 To have an effective Inventory Control.

11. E-PROCUREMENT PROCESSES:

1. Vendor enrollment

2. Indenting

3. Hosting of Enquiries

4. Bidding Process

5. Bid Opening Process

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 6. Clarifications

7. Techno Commercial Evaluation

8. Price Cover Opening

9. Negotiation or Reverse auction

10. Placement of order

11. Acceptance and Accounting of material through IRR

12. e-Payment

Other support processes:

 EMD acceptance & return process
 Bank Guarantee acceptance and return process
 Order follow up process

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11.1 Vendor enrollment:

Vendors have to obtain Class III Digital Signature Certificate (DSC) issued by
Government of India authorized third party-Certifying Authority (CA) and enroll
with NLC for participating in e-Procurement tenders. The Vendor cell at NLC
verifies and approves the enrollment and from then on the Vendor can quote
online in e-Procurement tenders of NLC.

DSC (Digital Signature certificates) has been made mandatory as per IT Act 2000.
DSC also ensures that the credentials of the Bidder are verified by Government
Of India authorized third party certifiying authority.

11.2 Indenting:
Departments in need of materials, shall raise the indent through online and the
Indent will flow upto the competent authority for approval as per the Delegation
of Powers (DOP). The indent should contain the name of material indented and
its code( Material code is of 9 digits), quantity, delivery schedule, basis of
estimate, procurement through two sources etc. Once the competent authority
approves the Indent, Purchase Requisition (PR) gets generated automatically in
the System.

11.3 Generating and Hosting of Enquiries:

On receipt of Purchase Requisitions, the purchase departments check for the
correctness of indent and generate Enquiries. The enquiry contains the item
details, specifications, drawings, terms and conditions of enquiry, Date of tender
opening, EMD details if any, etc. On final approval, Digitally signed enquiries
are automatically hosted on the NLC website. Also a System generated auto e-
mail alerts are sent to the Vendors. All competent authorities of NLCIL have been
provided with a DSC.

11.4 Bidding Process

Once the e-Mail alert is received by the vendor, the vendor can know that an
enquiry is available online to participate. The electronic Bidding forms of the e-
Tender are designed in such a way that the Vendor can complete the Bidding,
with minimum effort/knowledge of computers. In the e-Procurement Entry
Forms all the three Bid data (Technical, Commercial & Price) are validated and
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 interlinked to ensure the submitted Bid data are in Sync. The system allows the
bidder to submit their bids till two hours before the time of opening of tender.
Vendor can save the partially entered Bids any number of times before final
submission. When a Bid is submitted by the Bidder, the Bids get stored as
Technical and Commercial part (Cover-I) and Price Part (Cover-II). The Bid is
automatically serial encrypted by the system using Accounts Member and
Purchase Member digital keys. This ensures an account Member and Purchase
Member have to serially decrypt for a Bid to be opened.Email is sent to the vendor
acknowledging the receipt of the Bid.
Once the Bid is submitted, vendor has provision to delete the Bid and resubmit,
till the date and time of tender opening.Bid data is stored in encrypted form till
the date and time of opening.No data is stored in clear text on the Server at any
time, till the Bid is opened.

11.5 Bid Opening Process

On the due date and time of opening, the Bids are downloaded automatically by
the system from the e-Procurement server and made available to the
Bid opening members. On the date and time of Tender opening , the Cover-I
opening can only be done by the Accounts and Purchase members using their
digital keys, serially.
On decrypting the Bids, the digital signatures are verified by the system
automatically.
The decrypted Bids are sent to the e-proc Server. Immediately on opening of the
Bid, auto generated emails are sent to the participated Vendors. All the Bids of
that Enquiry, are made available online for viewing, to all the participated
Vendors. Qualifying Requirements, Techno Commercial Statements are auto
generated and made available to the concerned Departments for giving their
inference, for further processing online.

11.6 Clarifications:
All clarifications are addressed online to the Vendors. Response from vendors are
captured online and the effected statements are automatically revised.

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11.7 Techno Commercial Evaluation
After the receipt of the clarifications from vendors, the statements are revised by
the system incorporating the changes and the bid will be evaluated and put up to
competent authority for approval. Statement before the revision is also available.
On approval of the competent authority with respect to Qualifying requirements
and Techno commercial scrutiny, Short listed firms will be considered for Price
Bid opening.

11.8 Price Cover Opening:

Techno-commercially Short listed Vendors are intimated of price cover opening,
by email generated by the system. On the due date of opening, the price cover
(Cover-II) is opened by decrypting the bid by the Accounts and Purchase
members using their digital keys serially. The price comparative statement is
automatically generated by the system. L1 is automatically determined by the
system.

11.9 Price reduction by way of:

1. Negotiation :
If Price Negotiation is required (with L1 offer), it will be done online. The Bidder
can reduce the price or amend the taxes and duties on the online request from the
purchase department. Generally negotiations are done for purchases with estimate
value less than 5 lakhs and the quoted rate is 5% above estimate.
(or)
2. Reverse auction:
Reverse auction or reverse bidding is a process in which all the qualified bidders
have equal probability/ chance of getting an order even if they don’t have a least
quote on opening of price covers. On opening of price bids the quotes given by
all firms were evaluated. On a fixed date and time reverse auction is conducted
itemwise with an intimation to all bidders. The H1 bidder alone is not eligible for
participation in reverse auction if no of bidders are more than three. This condition
is enacted to protect NLCIL from over exploitation by bidders as they may give
a high quote initially and then reduce the cost in reverse auction.

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 On a specified date and time Reverse auction is conducted and the eligible bidders
can reduce their cost in decrements or multiples of decremental value given by
the system.
Decremental value = 10% of (L1 rate – Estimate)
The reverse auction will be open initially for one hour. Then screen gets refreshed
every 10 minutes and if any bids are given within 10 minutes time the RA will be
continued for another 10 minutes else it gets stopped. The purchase order will be
placed on the bidder who is having the least quote after completion of reverse
auction.

11.10 Placement of order:

After analysing the cost of L1 offer with respect to estimate, approval of the
competent authority is obtained online.On approval, Digitally signed Purchase
order is generated and sent to the Bidder online.

11.11 Acceptance and Accounting of material through IRR

Once the PO is placed, the supplier shall supply the materials as per the delivery
schedule stipulated in the order. The material supplied, will be check measured
and Inspection cum Receiving Report (IRR) generated and the same will be made
available online, to the supplier. The IRR are digitally signed by the Inspecting
officer and the digitally signed IRR are automatically hosted for the Vendors
to view. An e-Mail alert is also sent to the Vendor.After issue of IRR, material
will be taken into stock.
The PO to IRR followup help in providing details about the receipt of materials,
invoice details etc which would alert the user department to issue IRR within
specified period of time. Once material is received in stores and entry is made a
SMS will be sent through system to user department to proceed further to issue
IRR. Also the accounts department may view the IRR status from the below
followup screen before proceeding for payment.

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11.12 e-Payment:
e-Payment is made by NLC for the accepted materials after getting the Vendor’s
invoice through the following modes:
- Third Party Fund Transfer for SBI Accounts.
- Real Time Gross Settlement (RTGS) / National Electronic Fund .
Transfer (NEFT) for other Banks.
The details like Name of the Party, Account Number Indian Financial System
(IFS) Code / Branch Code are used for making e-payment. An Authoriser from
NLC uploads the data to SBI Website. Another NLC Authoriser approves the
payment. An e-Advice is sent to the Vendor for the payment made. As the
payment is made by online banking, the delay in realisation of the payment to the
supplier is reduced and also Supplier need not come to Neyveli for collection of
Cheque.

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12. BENEFITS OBTAINED BY IMPLEMENTING IS:
i. e-Procurement system in NLC allows Vendors to view Enquiries from NLCIL’s
Secure Socket Layer (SSL) enabled website. The information received by vendors
are well secured and received by vendors immediately after approval of enquiry
without any time delay. Vendors can view the enquiries, participate and submit
quotations online directly from the Website in a fair secure and transparent manner
maintaining complete confidentiality. Hence there is no necessity of Vendor to
come to Neyveli for Tender Opening, Price Negotiation and for Payment.

ii. Users can know the status of procurement at any point of time just by looking up in
the followup screen by typing the tender number.

iii. Efficiency of entire work system in procurement process has been improved by
reduced cycle time, elimination of delays arising out of manual intervention and
clarification due to lack of clarity. Also there is reduction of Offer Validity period
and procurement lead time.

iv. All documents flow between NLCIL and Vendors are digitally signed and hard
copies are dispensed off thus creating a paperless environment and developing
sustainability. These documents (Purchase Orders, Inspection cum Receiving reports
are confidential and are saved in server for future references.

v. Payment to Vendors are through e-Payment with proper reasons for deductions if
any, gives a clarity to vendor regarding receipt of payment pertaining to particular
order.

Ultimately Materials Management Department in NLCIL have achieved Paperless

processing.

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 2004-05 2008-09
Savings
Description (Rs. in (Rs. in
(Rs. in Lakhs)
Lakhs) Lakhs)

Stationery, Printing ,
Postage, Telephone, 32.09 11.53 20.56
Telegram charges

Petrol & Diesel 3.74 1.51 2.23

Hire Charges 23.62 9.9 13.72

After
Before
OLIMMS& Remarks
OLIMMS
E-procurement
Details

% reduction in no.of
Lead time in days
days

Indent to Purchase
50 to 55 0 100%
Requisition

Purchase Requisition
135 to 198 35-45 days 30.8% to 61.7%
to Purchase Order

Receipt of Materials-
Transport 13 to 35 5 to 12 12.8% to 49.7%

Memorandum to

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Inspection cum
receiving report

Passing of firm’s
bills in Account 8 2 63.3%
centre

Total cycle time

(max)

Details Before OLIMMS After OLIMMS

Year 04-05 08-09

Manpower 467 340

Total Expenses involved

in placing the Orders 1836.85 1031.64
(Rs.in Lakhs)

No. of Orders placed 3912 4572

Ordering cost per order

46954 22564
(Rs)

Average Savings per

6100
order (Rs)

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Total savings in
ordering cost (Rs.in 245
Lakhs)

13. TRANSPARENCY :
• Automatic Hosting of all enquiries (STE/LTE/PTE) online immediately on
approval by competent authority

• E-mail alerts to the concerned firms of the hosted enquiries.

• E-mail intimation on submission of Bids and deletion of Bids by vendors

• Digital signing of all documents submitted online by the vendors.

• Provision to take print out of all the documents submitted by the Vendors.

• Auto intimation on Bid opening.

• Provision to view competitors opened Bids.

• Automatic hosting and intimation of IRR.

• E-Payment and automatic intimation.

14. SECURITY AND AUTHENTICATION:

• Secured Hosting using in house web server with SSL, firewalls and anti virus.

• Client access authentication using DSC issued by GOI approved agencies.

• Bid encryption using Asymmetric public key Cryptographic method.

• Audit trail of each activity

• Communication between OLIMMS Server (MZ) e-proc Server (DMZ) using

encrypted Web service Automated intimation through e-mail.

• Provision for online updating of DSC on renewal,

by Vendor.

• Auto verification of digitally signed documents at every stage.

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15. INTELLIGENT REPORTING AND BUSINESS INTELLIGENCE:

OLIMMS system is Effective tool for Tracking of documents at various stages of

approval. Effective monitoring of procurement activities at various stages can be done
by way of MIS reports which could be kept for review of top management for taking
decisions which would improve the system and process and bring huge benefits to
organization. Examples of some reports are

1. Purchase monitor report is used to track the status of procurement of various

items, in which stage it is, why there is delay or problem in procuring, the
criticality of item in production process etc. This report is submitted to top
management where they can take decisions
2. Pending PO report is used to prevent delay beyond the scheduled date. In this
process, if there is a delay in the PO, reminder would be sent to the vendor by
the system. Under extreme circumstances, action would also be taken. In this
process, liquidated damage (LD) is also taken care. If the vendor fails to issue
the PO beyond the prescribed date, LD can be charged. If this timeline is
exceeded, the vendor would be categorized as default. These reports are
reviewed periodically by the senior management and requisite actions are taken
against repeated defaulters.
3. Reports of non acceptance of bank guarantee is a report which gives details
about vendors who have not submitted bank guarantee which will result in
default of payment. The management can take out this report to send mails to
vendors to let them submit the guarantee at the earliest. Ideally, the company
should pay the vendor in 45 days time. As per the company policy, the payment
can be done only once the bank guarantee is received. Moreover, the vendor has
the right to go to the MSME council in case of delay of payment from the
company.

4. Pending IRR status gives the information about the material receipt date, its
status in issue of IRR. This report helps in following the government norms by
issue of IRR within specified time (within 15 days from receipt of materials)
and thus preventing any issues with vendors regarding the delay in payment.

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 The report is reviewed by management once in 15 days that helps them to
identify the delays if any in issue of IRR and to improve the system.

16. ACHEIVEMENTS OF BUSINESS OBJECTIVES:

NLC INDIA Limited is a company whose major activities and lignite mining
and power generation. A large portion of their purchases include procuring spares for
capital equipment’s for mines, thermal power stations and medicines in hospitals. In
this process of procuring huge volume and variety of materials the firm faced problems
in accounting, data maintenance, payment related issues and managing vendor
relations. Also there is a huge requirement of manpower, cost of transaction and time.

Implementation of OLIMMS and e- procurement helped the firm in ordering

right quality and quantity of materials at lower cost in a transparent manner, receipt of
materials in time and easy follow-up. Also introduction of reverse auction had promoted
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 competition among bidders by providing a second chance to participated bidders to
reduce their cost and bag the orders. Also its able to maintain a good vendor relation by
processing the order at earliest, making the negotiations simple and payment is made at
earliest and least possible time.

17. CONCLUSION:

NLC India Limited have maintained a good e-procurement and material management
system by way of implementing an Internal information system. The system have
helped in achieving the company objectives by reducing the lead time in procurement,
cost reduction, creating a paperless environment, creating a system transparency and
integrity.

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