Standard Operating Procedure

Disposal of Scrap
Purpose:
The purpose of this SOP is to provide guidelines for disposal of scrap and ensure timely and safe
disposal with minimum risks to employees, public and health and environment.

Introduction:
Scrap items are parts with no useable life and includes all recyclable products.
For every part that goes out from Modaraba premises a Gate pass is issued. It’s clearly mentioned on
Gate Pass whether it’s returnable or not. Consumable parts are classified as non returnable. Further
more if the item is a CAT part a MIN is also made for it. While for Local purchased parts only gate pass
is issued.

CAT parts are capitalized, where local parts are expense out.

Scrap Items:
Main Scrap items are:

 Oil (CAT + Local)=based on number of liters

 Batteries =based on battery size
 Tyres =based on size and type of tyre
 Other Parts (CAT + Local) = these are disposed based on weight as one lot.

Major revenue is earned through the disposal of Oil, Batteries and Tyres.

Collection of Scrap Parts:

Scrap is generated through obsolesce of parts which are originally issued because of two reasons:

 For Schedule Maintenance

 For Trouble Shooting

Schedule maintenance is conducted according to the guidelines provided by Caterpillar.

Troubleshooting is held in case of problems in gensets.

Documentation:
In case used parts are returned to the store, return inward note shall be prepared by the store in-
charge on receiving the goods. Operation team returning the inventory is also required to sign on the
return inward note.

Return inward note shall be prepared by store incharge.

Oil Consumption ratio:
 Oil recovery ratio shall be as follows:
 Gas engines oil: Recovery of used oil is 30% to 35 % of total oil issued. Consumption /
wastage of NGEO is 65% to 70% of total oil issued.
 D.E.O: Recovery is 80% of oil issued. Consumption / wastage is 20% of oil issued.

The Capacity of the tanker in which oil is collected when received from the sites is 21,000 liters in
Lahore and 10,000 liters in Islamabad. Oil shall be disposed off when the tank is 90% filled.

No tank is available in Karachi and thus oil shall be disposed off when more than 8 drums are
available to be disposed off.

Consumable & Remains Parts:

 Consumable parts are consumable in nature and are not returned back. (Like seal-o-ring &
gaskets etc).
 Remains parts are those parts which are returnable but are not scraped to outsiders, these
parts are traded off for new parts from AESL of the same nature, because CAT gives us
special concession on new parts on return the old faulty parts.
 Part number of remain parts are such that these are separately identifiable.
Scrap committee:
A scrap committee has been formed comprising of members from audit department, admin manager
and a representative of finance department.

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Key areas covered under this SOP are:
 Recording
 Storing
 Disposal
 Accounting treatment
Recording:
Recording of scrap is essential; store incharge of all the regions must maintain a register which shall
contain relevant details. The register shall be maintained on day to day basis by the store incharge.

 On monthly basis MIN ledger should be reconciled with inward gate pass. Inventory officer
and Store in-charge should coordinate and follow up the missing parts on monthly basis, if
any.
 Site incharge shall check the quantity of the oil which is being returned to the head office.
 Further the store incharge shall verify the quantity being returned before issuing the part
inward note.

Storing:
The procedures to be followed in this respect shall be as follows:
  The scrap material shall be kept in the scrap area which shall be kept under lock and key. The
key shall be kept with the store incharge and the finance representative.
 Used items after inspection from store incharge are dumped into a specific area allotted for
the purpose of scrap parts which shall be kept lock.
 A new part shall only be issued once the old part is received for cases of replacement of
parts.(reverse is happening)48 hrs
 Oil shall be stored in the oil tanker.
 Material shall properly stored and clearly identifiable at the time of audit and auction.
 Parts shall be kept in the container until disposed off. Used parts should be properly tagged
(part name, number and rental number) on the spot or when they are collected in store, so
that they can easily be identified.
 Parts shall be deposited in the scrap area with a tag which shall contain the job number.
 In respect of batteries it shall be ensured that acid in the batteries is emptied.
 Scrap item should be inspected by relevant person before being scraped. (Because if any
part is repairable so we can save extra cost).
 Optimizing the use of scrap storage area by implementing proper strategies of handling used
items. Proper placement of scrap items when they are received in the store will provide
more space for the scrap storage.
 When Oil return back from sites the store department should check the oil quality (i.e.
whether water does not mix up with oil) before the issuance of GRN.
 Consumable and returnable (Remain Parts) parts should be kept separated so that during
the audit, returnable parts shall be easily identified.(no remain)
 Audit department is required to inspect such items before they are scrapped. Audit
department physically counts the items. And then generate a list of these physical present
items for auction.

Disposal of Scrap:
The procedures to be followed in this respect shall be as follows:

 Engineer should estimate the value it will fetch in the open market price. This value shall be
considered by the scrap committee to set the benchmark bid price. . A benchmark is decided
by the scrap committee below which the items shall not be scrapped.
 Admin shall publish a detail advertisement in the local daily newspaper and call for closed
tender from the prospective buyer, in other way they may send enquiry letters calling for
quotations from the identified buyer in such case three quotations shall be collected. The
bids are required to be addressed to the admin department. Region shall decide the option
based on the value of scrap, the cost of advertisement etc.
 The items are required to be shown to bidders by the Admin department.
 The frequency of disposal shall differ from region to region based on the volume handled;
however scrap must be disposed off at least twice a year in every region.
 The tender shall be opened in the presence of scrap committee. Finance representative in
the scrap committee shall ensure that the sealed tenders are kept under safe custody.
 Security deposit amounting to Rs 20,000 shall be taken from the bidders
 Based on the tenders received highest bidder is selected and awarded the scrap.
  Comparative statement of rate shall be prepared based on the tender by quotations
collected and the decision of selecting the party shall be mentioned therein. the statement
shall be signed by all the members of the scrap committee and shall then be forwarded to
the regional head.
 Scrap disposal shall be on cash and carry basis or the amount shall be deposited in the bank
and scrap shall then be collected within 48 hours of the clearance of the bank deposited.
 Sales tax on scrap shall be collected according to the registration status of the scrap dealer.
 In case the successful bidder refuses to take the scrap the second highest bidder shall be
awarded the scrap provided that he is willing to pay the amount bid by the highest bidder, if
not a reauction shall take place.

Accounting Treatment:

 Scrap disposal shall be on cash and carry basis or the amount shall be deposited in the bank
and scrap shall then be collected within 48 hours of the clearance of the bank deposited.
 Under no circumstances manual billing shall be allowed for such sale.