Study of Purchase Process & Study of Distribution Chain of Finished Goods

A Division of Berger Paints India Limited

Mr. R. Coomar Mr. H. S. Kapoor Faculty Guide: Prof. M. Ghosh Supervisor:

By Pranav Chawla IMT Nagpur

Group History
Trading in paints started way back in 1898. Rapid growth over the decades Prominent exporter status achieved in 1987 Acquired Berger Paints in 1991 Public issue of Rajdoot Paints in 1995 Merger of Rajdoot with Berger in 1999 Re-introduction of British Paints banner in 2009

The head office is located in Delhi with 36 branch offices (depots). The manufacturing units are located in:
Sikandrabad Samba Devla Surajpur

Product Portfolio

Interior Emulsions

Exterior Emulsions

Distempers & Primers

Study of Purchase Process
What is Purchasing..??
In yesteryears, in a manufacturing company, purchasing stands for buying of raw materials used for manufacturing. In modern era, purchasing is a way of procurement of raw materials with an objective of reducing the cost of raw materials to facilitate the manufacturer s comparative position in the market.

Objectives of the study
To study the Purchasing Procedure of Berger Paints India Ltd. To understand coordination between all departments of the company. To understand the planning procedure of manufacturing units. To get knowledge of stock keeping and Inventory control in Berger Paints India Ltd. To analyze different strategies of inventory management. To understand the need of documentation.

Concepts Used
Safety Stock Consumption quantity during Emergency Lead Time based on Average Monthly Consumption. Minimum Stock Safety Stock + Consumption quantity during Normal Lead Time. Reorder Level Minimum Stock + Average Monthly Consumption. (Store to raise indent when stock reaches this level) Maximum Stock Minimum Stock + Highest Consumption during the previous year during any particular month Indent / Order Quantity Difference between Maximum Stock and Actual Stock.

Objectives of the Purchase Department
To get the right material at most competitive price at the right time. To minimize capital investment in materials. To maintain good vendor relations To provide necessary expertise, advice and information about the best quality material available globally. To avoid duplication waste and obsolescence. To maintain company s competitive position in the market. To maintain BPIL s reputation and credibility into the market by fair and ethical practices. To know the source and availability of needed products. To write manuals, provide training and supervise all departments in meeting their purchasing needs. To inform department heads of market changes, new products and other such factors.

Principle of Purchasing

Functions of Purchase Department
Purchase Department here carries out the three main functions related to material procurement across both plant and corporate level
1. 2. 3. Planning and Procurement of Goods Strategic Purchasing Vendor development

1. Planning and Procurement of Goods
Purchase is the most crucial and important function performed by the purchase department. It includes many functions, namely:
Material Planning Scheduling PO Generation Activities for Payments Coordination with Supplier Coordination with Stores & Plant Monitoring Coverage & Availability according to Production Plan Inventory Management Supplier Payments

What is Purchase Order?
Purchase Order (PO) is a legal commercial document which contains the following information:
Description of Material Reference of Indent Suppliers name for whom it is generated Transportation Terms Date Discount Price (if availed) Government levied terms 

If rules are not followed as per the details mentioned in the purchase order, then any of the parties in contract can sue the other in the court.

2. Strategic Purchasing
Strategic purchasing is done basically for the following category of items: ‡ Long delivery time items ‡ Items whose availability is scarce ‡ Imports

The benefits of Strategic Purchasing are: ‡ Cost effective as mainly items are imported ‡ To avoid stock out situation where the availability is scarce

3. Vendor Development
Purpose: ‡ The main purpose of vendor development is to explore the alternate sources, so that cost effective buying can be made through competition/availability of material. ‡ This helps in reducing lead time as vendor information is available for quick reference. Goal: ‡ To develop strong vendor base for new components, alternate sources for existing components and to reach progressively a level of the following:
Efficient, effective vendors Assured process capability and quality Committed deliveries. Cost effective process. Better services based on needs from vendors. Continuous technological improvements. To break monopoly. Partnerships for New ideas.

Store will in the beginning of every month after entering the consumption figures of the previous month will check which items have touched or gone below reorder levels. Store will raise indent for these items. The indent quantity will be the difference between Maximum Stock level and actual stock as on the beginning of that month. Immediately on receipt of indents, Purchase Department will take action for placing Purchase Order. Purchase Department will prepare a statement every month where in following parameters will be considered and orders placed accordingly : -

‡ ‡ Approved Vendor s List Product Information: 
Technical Data Sheet  Material Safety Data Sheet

‡ ‡ ‡ ‡

Product Development Documentation Purchase order Supporting Documents Strategic Purchase Documents Planning Documentation :
Master List Purchase Indent Purchase Order MRN

Study of Distribution Chain of Finished Goods
A channel of distribution is the route or path along which goods move from producers to ultimate consumers. Channel of Distribution consists of producer, intermediaries, and consumers.

Objectives of the study
To understand the meaning of channels of distribution. To identify different channels of distribution. To minimize the cost and time of transportation and to keep the finished goods inventory at the optimum level. To describe the functions of depots, warehouses and dealers. To understand the importance of effective distribution chain.

Indent = Maximum Stock Actual Stock Ideal indenting = Volume of budget of current month + Volume Budget equivalent to stock norm days Opening stocks of current month. Total Stock Quantity = Free Stock + Blocked Stock + Untraceable Stock Non Moving Stocks No sale at all in the last 90 days. So Indent generated will be zero. Slow Moving Stocks Stocks as on date are in excess of actual sales of the SKU s in last 60 days Fast Moving Stocks Rest all SKU s will fall in this category.

Stock Norm Quantity: It is calculated based on Stock Norm Days for the Depot. If a Stock Norm Days for the Depot is 30 days then depot will be entitled to do indenting not exceeding that month s budget + next month s budget. For Stock Norm Days 30: Stock Norm Quantity = Current Month s Budget + Next Month s Budget For Stock Norm Days 45: Stock Norm Quantity = Current Month s Budget + Next Month s Budget + 15 days of Next to Next month budget

Damaged Stocks
Decantable: The goods which can be repacked and sold at full rates. Invoicable: That which is to be sold without repacking, but may be at some discount. Job Lot: That which is totally empty/jelled etc. and has to be sold on as is where basis. Product Complaint: That which is certified as defective as per approved HO advises

Distribution Channels of British Paints
The distribution channel of the finished goods followed by British Paints:

Benefits of Distribution
Each of the intermediaries provides value. The marketing intermediaries offer value in the form of: Information Promotion Negotiation Funding Matching Risk taking

Responsibilities and Functions of the Dealers :
‡ ‡ ‡ ‡ ‡ ‡ ‡ Buying of Goods Storage of Goods Credit Facility Personal Services Risk Bearing Display of Goods Supply of Information 

The dealers should be in regular touch with the customers, keep taking his feedback and ensure maximum customer satisfaction. The dealer should also try and convince the customers to try newer products of the company

They store goods in bulk that is manufactured by the producers and deliver them in relatively smaller quantities to the dealers. Some of the functions of the depots are: Procurement of goods Storage of goods Distribution Risk taking

Support/Role of Depots Guiding and Motivating Project Sales Officer (PSO) Regular Monitoring of Working Ensuring Output Support w.r.t. Sampling/Complaint Handling/Material Supply Sharing of Market Information and Updating them Giving Project Information/Continuous Support

Manuals and Documents of Berger Paints India Limited (British Paints Division)

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