MATERIAL MANAGEMENT

DR. Vinoth Kumar V

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 5R’s of Purchasing
Buying the RIGHT QUALITY
Buying the RIGHT QUANTITY
Buying at the RIGHT PRICE
Buying from the RIGHT PLACE
Buying at the RIGHT TIME

These are often called the “Five Rights” of procurement and supply-act
like “key performance variables" or "procurement factors"

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 Contract Management
• Contract management encompasses everything from establishing the business case and
confirmation of need through to relationship management and reviewing performance. It can be
divided into two phases: upstream and downstream of the contract being awarded.
• Contract management, performance and termination plays an important part in the procurement
function. Managing a contract effectively contributes towards added value by reducing the risk of
non-conformance and ensuring continuity of supply.
• Contract management and performance includes the use of Key Performance Indicators (KPIs) and
Service Level Agreements (SLAs).
• The use of these SMART tools helps a procurement professional to fairly and efficiently manage the
suppliers' performances.
• Termination of a contract does not have to be a negative action. Termination can occur due to the
contract having run its course (completion) and having been performed well. Termination can also
be linked to supplier or buyer failure, through the occurrence of a breach or through financial
difficulties.
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 Contract Management

Contract management plan should ensure:

• Arrangements for service delivery satisfactory to both parties

• The expected business benefits, efficiencies and value for money are
delivered
• The supplier is co-operative and responsive
• Your organisation understands its obligations under the contract
• There are no disputes or surprises
• Professional and objective debate over changes and issues.

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 Contract Management
The contract management process includes:

Managing Service Delivery: To ensure that the products are delivered as and when they are ordered.

Managing the Relationship: This is the communications between the vendor and the purchaser.

Managing the Contract: This is the ongoing contract administration to ensure that the day-to-day procurement activities follow
the spirit and sections of the contract.

Seeking Improvements: Improvements within a procurement environment mean greater efficiencies and an increase in profits.

Ongoing Assessment: The entire procurement activities are assessed on a continual basis to ensure that the contracts are
adhered to and the purchasing processes followed.

Managing Change: In a long term procurement relationship, there are sometimes changes in activities, requirements or
products available. All of these changes need to be noted and handled effectively.

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Contract Management Cycle

SOURCE: CIPS
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 Contract Management

Effective contract management process implemented due to :

• Increasing pressure to reduce costs
• The need to optimise financial and operational performance
• New regulatory requirements
• Increasing contract volumes and complexity
• Growing need to automate and improve contractual processes
• Increasing compliance and analytical needs.

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 Technical, Commercial and
Legal Aspects of Purchasing
• All the purchase orders signed by the buyer on behalf of his
company legally binds therein.
• It’s a legal contract between the buyer and the seller.
• The buyer and the seller may be in a position to get the agreement
enforced by the law of the land.
• The company can establish legal department on corporate matters
of purchasing.
• The purchaser must be familiar with the law which are applicable
under all conditions to guide his day to day business.

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 Technical, Commercial and
Legal Aspects of Purchasing
Law of Contract:
• The buyer’s major responsibility is to ensure that the purchase contracts are
properly drawn and to see that they are legally binding on the supplier.
• In order to make it valid contract and enforceable by law, the purchase
contract must also have the following four basic elements of the valid
contract:
• The agreement resulting from an offer and acceptance, understood in the same
sense.
• A consideration or obligation in the same form.
• Parties should be competent to contract.
• The purpose of the contract should be lawful.

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 Technical, Commercial and 11
Legal Aspects of Purchasing
Law of Agency

• The law of agency states that the acts of the agent done within the
apparent scope of his authority binds his principal with respect to
third parties.
• A purchasing officer acting on behalf of his company is actually acting
as an agent on behalf of his principal within the apparent scope of his
authority.
• It is this relationship of the principal and the agent, and the apparent
authority of an agent to act on behalf of his principal, that creates the
legal relationship as between the company and the outsider.

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 Technical, Commercial and 12
Legal Aspects of Purchasing
Legal Status of the Buyer

• If the buyer exceeds both his actual and apparent authority, the
supplier cannot hold his principal liable but can only hold the buyer
personally liable for his action.
• Most legal problems arise in connection with the following areas of
conflict:
• Price,
• Payment terms
• Quality
• Delivery
• Legal problems

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 Technical, Commercial and 13
Legal Aspects of Purchasing
Price, Payment and Other Terms

• Open-price Contracts: the supplier will charge at market price “prevailing

at the time of delivery”
• Cost-plus Contracts: the seller nor the buyer knows the cost of the
product. In this case cost-plus fixed fee or profit is the only the solution.
• Escalator Contracts: many purchase orders are sent for delivery of
materials over a long period of time with a provision for future price
changes. In these cases the seller should inform about the price changes
to the buyer.

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 Technical, Commercial and 14
Legal Aspects of Purchasing
Warranties and Conditions

• Generally the warranties and conditions are implied or expressed based

on the functional need and carries a warranty of fitness for the purpose of
which the goods are purchased.
• The sale is made on the basis of the sample tendered and considered as a
representative of the total quantity.
• Many suppliers make express warranties which typically refer to the
product capacity, performance characteristics of the goods they sell.
• The byer should realize the that an express warranty nullifies an implied
warranty to he extent that it conflicts with the implied warranty.

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 Technical, Commercial and 15
Legal Aspects of Purchasing
Right of Inspection

• The purchaser has the right to inspect the materials received and ensure
that they conform to the conditions of sale as mentioned in the contract
under stipulated time.

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 Technical, Commercial and 16
Legal Aspects of Purchasing
Right of Rejection
• The buyer can reject the materials under following conditions:
• Wrong item received
• Items not conferring to quality
• Wrong specifications
• Excess supplies- should be returned within stipulated time- or obliged to pay.
• Terms of payment-
• Specific stages of payments/progressive payments
• Trade or cash discounts
• INCOTERMS: FOB, CIF,DDP – Ex: deliver to buyer’s plant or shipping point etc.,
• Delivery: the buyer has the right to cancel the order if the delivery of the
materials fails to Perform the act of delivery on a specified date, as per the
contract.

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 Technical, Commercial and 17
Legal Aspects of Purchasing
Right of Rejection
• Breach and Cancellation: After the cancellation the buyer can then sue for damages if
he suffered losses as per the contract. Non-delivery with the specified date will lead
to breach and cancellation of the contract.
• Damages: if either party breaches the contract then, the party who has suffered the
losses can sue to the other party unless it is by natural calamity or disaster.
• The damages are generally awarded due to the probable loss to the buyer and not a
penalty to the seller.
• Honest mistakes: the honest mistake made by one party does not make the contract
void, if other party has not previous knowledge of the mistake.
• Infringement of Patent Rights: All buyer should include a protective clause in the
purchase order, so that in case of infringement, the seller will indemnify the
purchaser for all the losses and damages suffered.
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 SCHEMES

IMPORT EXPORT CONSULTANTS

EXPORT PROMOTION SCHEME
MEIS SCHEME(Merchandise Exports from India Scheme)
SEIS SCHEME(Service ,, ,,) RoDTEP stands for Remission of Duties
and Taxes on Export Products. It is a new
EXPORT PROMOTION CAPITAL GOODS (EPCG)
scheme that is applicable with effect
DUTY EXEMPTION SCHEME from January 1st, 2021, formed to
replace the existing MEIS (Merchandise
DUTY REMISSION SCHEME Exports from India Scheme

DEEMED EXPORT
EOU / STPI(Software Technology Park of India) / EHTP(Electronic
Hardware Technology Park)

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 SCHEMES

SPECIAL ECONOMIC ZONE (SEZ)

ADVANCE AUTHORISATION SCHEME
CUSTOMS DUTY REFUND FOR IMPORTERS & EXPORTERS
DUTY FREE IMPORT AUTHORISATION (DFIA)
SPECIAL ADDITIONAL DUTY REFUND OF CUSTOMS
IMPORT LICENCE FOR RESTRICTED ITEMS
PROJECT IMPORT SCHEME (PIS)
SPECIAL VALUATION BRANCH (SVB)

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 Legal Aspects
Trade Barriers
Import Tariffs
Import Requirements and Documentation
Labeling/Marking Requirements
Temporary Entry
Prohibited & Restricted Imports
DGFT
Customs Regulations
Standards forTrade
Trade Agreements
Licensing Requirements for Professional Services

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 Import Export (IE) Code
 IEC can be applied online.
 IE Code is issued by the Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industries,
Government of India.
 Only one IEC is issued against one PAN card.
 Once an IEC license is issued, it shall be valid forever.
 One IEC shall be valid for all branches/units/factories/division.
 Documents Required for Import Export Code
 Individual’s or Firm’s or Company’s copy of PAN Card
 Individual’s voter id or Aadhar card or passport copy
 Individual’s or company’s or firm’s cancel cheque copy of current bank account
 Copy of Rent Agreement or Electricity Bill Copy of the premise
 Digital Signature of Class-2 of Authorised Representatives
 I E Code must be quoted :
 When an importer has to clear his shipments from the customs then it’s needed by the customs authorities.
 When an importer sends money abroad through banks then it’s needed by the bank.
 When an exporter has to send his shipments then its needed by the customs port.
 When an exporter receives money in foreign currency directly into his bank account then its required by the bank.
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 Import licensing requirements

Most items fall within the scope of India’s EXIM Policy regulation of Open
General License (OGL).
Freely importable without restrictions and without a license.
Imports of items not covered by OGL are regulated and fall into three
categories: banned or prohibited items, restricted items requiring an
import license, and “canalized” items, importable only by government
trading monopolies and subject to Cabinet approval regarding timing and
quantity.

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 Import licensing requirements
• The Ministry of Defense for defense related items.
• The Director General of Foreign Trade for small-scale industries not covered above.

• Capital goods can be imported with a license under the Export Promotion Capital Goods plan (EPCG) at reduced duty rates,
subject to the fulfillment of a time-bound export obligation. The EPGC plan now applies to all industry sectors. It is also
applicable to all capital goods without any threshold limits, upon payment of a five percent customs duty.
• A duty exemption plan is also offered, under which imports of raw materials, intermediates, components, consumables,
parts, accessories, and packing materials required for direct use in products to be exported may be imported duty free under
various license categories.
• Advance Authorization : Certain products require an advance license to allow duty free imports of inputs which are physically
incorporated into export products. In addition, fuel, oil, energy, and catalysts consumed to produce export products are also
allowed under this plan. The raw materials/inputs are allowed in terms of Standard Input-Output Norms (SION), or self-
declared norms of exporters.

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 Import licensing requirements
Advanced Licenses are issued on pre-export or post export bases in accordance with the Foreign trade policy and procedures,
and can be issued for:
• Physical exports: An Advance License may be issued for physical exports to a manufacturer exporter or merchant exporter
tied to supporting manufacturer(s) for the import of inputs required for an export product.
• Intermediate supplies: An Advance License may be issued for intermediate supply to a manufacturer/exporter for the
import of inputs required in the manufacture of goods to be supplied to the ultimate exporter/deemed exporter holding
another Advance License.
• Deemed exports: An Advance License may be issued for deemed exports to the main contractor for the import of inputs
required for the manufacture of goods to be supplied to the categories mentioned in the Foreign Trade Policy
(Note: Updates to India’s Foreign Trade Policy (FTP) are delayed until March 31, 2022. Exemption from the payment of
Integrated Goods and Service Tax (IGST) and compensation cess on the imports made under the advance/EPCG
authorizations, and by the export-oriented units, were also extended through March 31, 2022. The validity of “status
holder” certificates for exporters were extended similarly).
• An Advance License for deemed exports can also be acquired by a subcontractor for projects, provided the name of the
subcontractor appears in the main contract. Such licenses for deemed exports can also be issued for supplies made to
United Nations Organizations or under the Aid Program of the United Nations, or other multilateral agencies and paid for in
foreign exchange.
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Import licensing requirements

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 Import licensing requirements
Import Declaration
• Importers are required to furnish an import declaration in the prescribed bill of entry format, disclosing full
details of the value of imported goods.
• Import Licenses (where applicable)
• All import documents (e.g., ex-factory invoices, freight documentation, insurance certificates) must be
accompanied by import licenses. This enables customs to properly clear the documents for timely imports.
• Letter of Credit (L/C) - Importers must include a copy of the L/C to record payment for imports. Normally this
document is verified with the issuing bank.
• Not all consignments are inspected prior to clearance, and inspections may be waived for known
importers. Under the current customs regime, an appointment with the clearing agent(s) helps avoid delays. In
general, documentation requests/requirements are extensive, and delays are frequent.
• Clearance delays cost time and money, including additional detention and demurrage charges, making it more
expensive to operate and invest in India. For delayed clearances, importers seek release of shipments against a
performance bond; furnishing a bank guarantee for this purpose is a more expensive option. Indian Customs
has recently extended its operations to 24 hours to ensure more timely clearances of imports.
• Labeling is an important consideration for exporting to India. English is the preferred language for labeling.
Indian Customs is strict and ensures that imported items include the legally required labelling information.
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 Labeling/Marking Requirements
According to the Ministry of Commerce, all pre-packaged commodities intended for direct retail sale imported into India must carry
the following information on the label:

• Name and address of the importer. -Generic or common name of the commodity.

• Net quantity in terms of standard unit of weights and measurements. All units of weight and measurement must be metric. If the
net quantity of the imported package is given in any other unit, its equivalent of standard units must be declared by the importer.

• Month and year of packing in which the commodity is manufactured, packed, or imported, and the maximum retail sales price
(MRP) at which the commodity may be sold to the end consumer. The MRP includes all taxes, local or otherwise, freight, transport
charges, commission payable to dealers, and charges for advertising, delivery, packing, forwarding, and any other relevant
charges.

• Note: Pre-packaged food products meant for institutional use do not require the MRP, but a ‘Not for Retail Sale’ declaration on
the label is required. Pre-packaged commodities such as raw materials, components, and bulk imports that undergo further
processing before sale to end consumers are not included under these labeling requirements.

• The Food Safety and Standards Authority of India (FSSAI) was established under the Food Safety and Standards Act, 2006, as a
statutory body for regulating the manufacturing, processing, distribution, sale, and import of food products as well as its labelling
and packaging requirements.
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 Labeling/Marking Requirements
Additional labelling requirements for packaged food products, as stipulated in Part VII of the Prevention of Food Adulteration (PFA)
Rules, 1955, and the Standards of Weights and Measures (Packaged Commodities) Rules of 1977, require that the labels contain the
following information:

• Name, trade name, or description.

• Name of ingredients used in the product in descending order of their composition by weight or volume.

• Name and complete address of manufacturer/packer, importer, and country of origin of the imported food (if the food article is
manufactured outside India but packed in India).

• Net weight, number, or volume of contents. - Distinctive batch, lot, or code number.

• Month and year of manufacture and packaging. -Month and year by which the product is best consumed. - Maximum retail price.

• Wherever applicable, the product label also must contain the following information: The purpose of irradiation and license number
in case of irradiated food. - Extraneous addition of coloring material.

• Non-vegetarian/vegetarian food: Any food which contains whole or part of any animal including birds, fresh water or marine
animals, eggs, or any ingredient of animal origin (excluding milk or milk products), must have a symbol of a brown color-filled circle
inside a brown square outline prominently displayed on the package, contrasting against the background on the display label in
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 Labeling/Marking Requirements
• Vegetarian food must have a similar symbol of a green color-filled circle inside a square with a green outline
prominently displayed.
• All declarations must be:
• Printed in English or Hindi on a label securely affixed to the package; or
• Made on an additional wrapper containing the imported package; or
• Printed on the package itself; or
• Made on a card or tape affixed firmly to the package and bearing the required information prior to customs
clearance.
• Products displaying only a standard U.S. label cannot enter India. The Food Safety and Standards Authority
Of India’s (FSSAI) Food Safety and Standards (Import) First Amendment Regulations, 2018, stipulate that
“Custom Authorities shall not clear any article of food unless it has a valid shelf life of not less than sixty per
cent, or three months before expiry, whichever is less, at the time of import”. Product shelf life is calculated
based on the information provided on the label of a product.

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VINOTH KUMAR
 Purchase Order
(a) Purchase order reference number, as a communicating mode between the supplier and the buyer
for linking of various subsequent correspondences
(b) Material description with detailed specifications,
(c) Quantity ordered
(d) Required Delivery schedule,
(e) Price , discounts, taxes and duties applicable
(f ) Terms and conditions of purchase in details
(g) Destination where the materials are to be delivered (usually the name and address of the
consignee),
(h) Shipping instructions,
(i) Authorization of the Materials Manager who signs the purchase order.
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 Import Procedure
Step 1. Obtaining import license and quota
In all countries there are many government regulations to be followed. Sanction of
government is necessary. Importer has to apply to the controller of imports for getting
necessary permission.
Importer has to attach the following documents to his application form :-
Receipt which shows that import license fee has been paid.

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Certificate from a Chartered Accountant showing the total value of goods to be
imported.
Verification Certificate for income tax.
An import license may be general or specific. A general license allows imports from any
country. But specific license allows imports from specific country only.
The importer also has to obtain import quota certificate from the concerned authority. It
mentions the maximum quantity of goods which can be imported.
 Import Procedure
2. Obtaining foreign exchange

Before placing any order, the importer must apply to the Exchange Control Department
(ECD) of RBI (India's Central Bank) for the release of requisite foreign exchange.

The importer should forward the application through his bank.

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The ECD verifies the application of the importer, and if found valid, sanctions the foreign
exchange for the particular transaction.
 Import Procedure
3. Placing an order

The importer may either place the order directly or through the indent house (Agent).

In case of canalised items, he obtains the imports through the canalizing agency.

(Canalisation means channelisation of goods through a government agency like MMTC).

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The importer cannot directly import such canalized items. They have to place an order
with the canalizing agency who shall import and supply the same.
 Import Procedure
Step 4. Despatching letter of credit

After getting the confirmation from the supplier regarding the supply of goods, the
importer requests his bank to issue a Letter of credit in favour of supplier. It can be
defied as "an undertaking by importer's bank stating that payment will be made to the
exporter if the required documents are presented to the bank".

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 Import Procedure
Step 5. Appointing clearing and forwarding agents

The importer makes arrangement to appoint clearing and forwarding agents to clear the
goods from the customs.

Since clearing of goods is a specialized job, it is better to appoint C & F agents.

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 Import Procedure
Step 6. Receipt of shipment advice

The importer receives the shipment advice from the exporter.

The shipment advice states the date on which the goods are loaded on the ship.

The shipment advice helps the importer to make arrangement for clearance of goods.

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 Import Procedure
Step 7. Receipts of documents
The importer's bank receives the documents from the exporter's bank. The documents
include bill of exchange, a copy of bill of lading, certificate of origin, commercial invoice,
consular invoice, packing list, and other relevant documents. The importer makes
payment to the bank (if not paid earlier) and collects the documents.

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 Import Procedure
Step 8. Bill of entry
This is a document required in case of import of goods. It is like shipping bill in case of
exports. A Bill of Entry is the document testifying the fact that goods of the stated value
and description in specified quantity are entering into the country from abroad. The
customs office supplies this form which is prepared in triplicate. Three different colours
are used to prepare bill of entry.One copy is retained by custom department, other is
retained by port trust and the third is kept by the importer.

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 Import Procedure
Step 9. Delivery order
The clearing agents obtains the delivery order from the office of the shipping company.
The shipping company gives the delivery order only after payment of freight, if any.

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 Import Procedure
Step 10. Clearing of goods

The clearing agent pays the necessary dock or port trust dues and obtains the port Trust
Receipt in two copies.
He then approaches the Customs House and presents one copy of Port Trust Receipt,
and two copies of Bill of. Entry to the customs authorities. The customs officer endorses
the Bill of Entry Forms and one copy of Bill of Entry is handed back to the importer. The

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importer then pays the customs duty and clears the goods. In case, the customs duty is
not paid, then the goods are stored in the bonded warehouses. As and when the duty is
paid, the goods are cleared from the docks.
 Import Procedure
Step 11. Payment to clearing and forwarding agent

The importer then makes the necessary payment to the clearing agent for his various
expenses and fees.

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 Import Procedure
Step 12. Payment to exporter

The importer has to make payment to exporter. Usually, the exporter draws a bill of
exchange. The importer has to accept the bill and make payment.

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 Import Procedure
Step 13. Follow up

The importer then informs the exporter about the receipt of goods. If there are any
discrepancies or damages to the goods, he should inform the exporter.

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DOCUMENTATION
EXPORT DOCUMENTATION
• Invoice
• Certificate
• Custom documents
• Transport documents
• Exchange control
• Payment documents
• Miscellaneous documents
IMPORT DOCUMENTATION
• Transport documents
• Bill of entry
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• Certificate of inspection
• Certificate of measurement
• Freight declaration
• Fumigation certificate
VINOTH KUMAR
VINOTH KUMAR
THANK YOU