Material Department was formed to carry out all material

related activities for meeting day to day operational

requirements and ongoing projects.

Objective:
To provide uniformity and transparency in procurement
procedures and other material management related functions.
The functions of material department can broadly be
classified into the following categories:
◦ Purchasing
◦ Store Management
◦ Inventory Management
◦ Handling & Reconciliation of Project Materials
◦ Identification & Disposal of Surplus & Scrap.
Primary Objective:
 Ensure timely availability of materials for Operations & Projects.

Secondary Objective:
 Reduce capital/inventory and recurring expenditure through proper
purchases which can be effected by the 6 R's
Right Quality Right Quantity
Right Time Right Source
Right Place Right Price
 Receipt of Purchase Requisition (PR)
 Selection of Method of Purchase/Methods of Tendering
 Selection of Vendors
 Floating of Enquiry
 Receipt of Bids
 Evaluation of Bids (Commercial /Price Comparative
Statement)
 Purchase Proposal ( T.C.)
 Negotiations (if necessary)
 Issue of LOI / Purchase Order
 Follow-up with Vendors – PBG, Inspection/Delivery
 Issue of Dispatch Clearance
 Claims
 Bill Processing
 Inventory Control (IC) Items (items with repetitive requirement)
o For approved IC Items, PR shall be raised by Materials Department
and approval by Head of Materials Department.

 Non IC Items
o PR shall be raised by User Department as per maintenance
planning and approval as per Material Manual Clause 2.2.6.5.
Details to be furnished along with PR (in general):
 Justification of Requirement
 Budget Head (Revenue / Capital)
 Approval (As per Material Manual Clause 2.2.6.5)
 Estimate – Basis of estimate, Taxes, Duties, etc.
 Technical Specification, Datasheet & Drawing
 Location of Delivery
 Scope of Inspection
 Delivery Schedule
 Consumption of Materials (by date)
Proprietary Items

o Procurement of any spare from the original vendor or the original

manufacturer of the equipment/sub assembly/ component shall be
deemed as a proprietary purchase.

◦ All proprietary items shall be got concurred by Finance and

approved by GM / ED as a onetime exercise.

◦ Periodically reviewed at least once in three years.

 Approving Authority for Purchase Requisitions as per Material
Management Manual:

Up to Rs. 2.00 lakh HOD

2.00 lakh to 10.00 lakh DGM
More than 10.00 lakh GM / ED

 All PR shall be approved through SAP.

 Finance Concurrence for PR Estimate Value more than 25.00 lakh.
Basis for deciding methods of Tendering

◦ Estimated Value

◦ Indenter recommendation

◦ Vendor availability
 Open Tender - (Through Press)
 Limited Tender
 Single Tender – In case of proprietary items/Other Exceptional
Cases

 Repeat Order - within 6 months from original order, not exceeding

original order qty and prices are reasonable, same file
 Committee Purchase - exceptional /emergency cases committee
to collect min 3 quotations and finalize on the spot
 DGS&D Rate Contract
Tender Document
 Notice inviting Tender (NIT)  Schedule of Rates/BoQ
 Tender Fee  Special Conditions of Purchase
 EMD  Special instructions to tenderers
 Type of bidding  Instruction to Tenderers
 Single bid  BG formats
OR  Bank details
 Two Bid  Relationship with Directors
 Pre-qualification criteria  Form of Tender
 Single order value
 Turnover
 Evaluation Criteria
 Delivery Schedule
 Technical Specifications
 General Conditions of Purchase
 Minimum Time Limit from Date of issue of Tender to Submission of
Offer:

Above 5 crore 28 days

From 25 lakh to 5 crore 21 days
Below 25 lakh 14 days
Type of Bidding:

Single Bid

Two Bid
EMD is required to be submitted by the bidders along with their
technical bid with a view to ensure that the bidder / vendor
do not fail to honour the tender / offer terms.

ESTIMATE VALUE EMD Amount

Up to Rs. 5 lakh Nil
Above Rs. 5 lakh and up to Rs. 500 lakh 1% of Estimate
Above Rs. 500 lakh and up to Rs. 2500 Rs. 5 lakh plus 0.5% on
lakh additional value of tender over
Rs. 500 lakh
Above Rs. 2500.00 lakh Rs. 15 lakh plus 0.25% on
additional value of tender over
Rs. 2500 lakh
 EMD is not required in case of:
◦ Single / Proprietary Purchase.
◦ Limited Tenders valuing up to Rs. 50 lakh.
◦ From NSIC registered vendors.
◦ From Central / State PSUs and JVs of IOC.

 Wherever, EMD is asked for in the tender, offers received without

EMD shall be rejected
◦ Does not submit the Earnest Money Deposit before closing
date and time of tender.

◦ Does not fulfil minimum qualification prescribed in the

Tender Documents.

◦ Submits the tender late i.e. after due date and time.
 Important Tender Conditions
 Technical Evaluation
 Technical Query
 Technical Acceptance
 Technical Rejection
 Commercial Evaluation
 Commercial Rejection
 Commercial CS – Checking by F > Rs.5 lakhs
 Techno Commercial Acceptance
◦ Stipulates the validity period less than what is stated in the Tender
Form.

◦ Does not disclose the full names and addresses of all his partners
or Directors.

◦ Does not fill in and sign the required Annexure, specifications, etc.
as specified in the tender.

◦ Submit EMD in price bid in place of technical / commercial bid in

Two Bid System of Tendering.

◦ Submits unacceptable terms and conditions.

 The following are not permitted after opening of the bids/during the
evaluation of the tender
◦ Change in Important Tender Conditions
◦ PQ criteria
◦ Change in Specifications
◦ Change in Terms and Conditions of the Tender
◦ Change in Quantity
 In case of any changes are inevitable, tender shall be closed & re-
tendered. If time does not permit for re-tendering, tender sale shall
be re-opened intimating/publishing the changes to give opportunity
to other prospective vendors
 Alteration or modification or tampering with the offer while
evaluation, is not permitted
 Technical queries (TQ) are forwarded by Indenting dept. to Materials
Dept. for getting the replies from the bidders
 TQ & Commercial Queries (CQ) are issued by Materials to bidders
to bring all the bidders at par with the terms and conditions of tender
 TQ replies are forwarded to Indenting dept. for review
 Based on technical evaluation, offers are either accepted or rejected
by the Indenting dept.
 Technical rejections to be approved by indenting dept., recording
clearly the reasons for rejection
 Commercial deviations from the standard terms & conditions if any
are accepted or loaded as per guidelines with the approval of GM
after Finance concurrence
 Any commercial rejection other than ITC requires Finance
concurrence
 Approval is obtained for opening of the price bids of techno-
commercially acceptable bidders
 Intimation to techno-commercially acceptable bidders – (Not required
in case of e-tender)
 Pre-price bid Meeting > Rs.5 crore
 Bid opening Committee - (Not required in case of e-tender)
 Price bid box opening jointly by Committee - (Not required in case of
e-tender)
 Entry in Bid opening Register - (Not required in case of e-tender)
 Witnessing by bidders - (Not required in case of e-tender)
 Price bid opening
 Price Comparative Statement
TENDER ENQUIRY NO.:-PLM/PREXPL/02/13
ITEM-BASKET STRAINER
M/S ABC , NEW DELHI M/S XYZ, THANE
IT. DESCRIPTION QTY. ITEMWISE ITEMWISE
NO. IN UNIT RATE TOTAL AMT. LANDED UNIT RATE TOTAL AMT. LANDED
Nos. IN RS. IN RS. COST IN RS. IN RS. COST
A MUNDRA-PANIPAT SECTION
1 Single Basket type Strainer 2 120000.00 240000.00 293868.84 291600.00 583200.00 749367.85
TOTAL BASIC 240000.00 293868.84 583200.00 749367.85
PRICE BASIS EX WORKS , NOIDA EX WORKS ,THANE
DISCOUNT nil 0.00 nil
TOTAL AFTER DISCOUNT 240000.00 583200.00
PACKING & FORWARDING nil 5% 29160.00
EXCISE DUTY 16% 38400.00 16% 97977.60
SALES TAX AGAINST C-FORM 4% 11136.00 4% 28413.50
FREIGHT 1.0% 2400.00 1% 5832.00
INSPECTION 0.5% 1200.00 0.5% 2916.00
INSURANCE 0.25% 732.84 0.25% 1868.75
TOTAL LANDED COST 293868.84 749367.85
Estimate 350000.00 350000.00
Position L1 -16% L2 114%
Low High
 Price CS
 Checking by F
 Workability of Rates
 Negotiation
 Acceptance of Price
 Tender Committee
 TC Minutes/Proposal
 Finance Concurrence ( FC)
 Approval - as per DoP / DoA
 Letter of Intent – FC > Rs.25 lakhs
 PO Specifications
 PO – F release > Rs.25 lakhs
 Release of EMD
 After acceptance of tender by the competent authority, material
dept. shall issue the LOI.
 The LOI for more than the amount specified in DOA shall be
concurred by Finance before issue.
 LOI is issued to covey our acceptance of the selected offer
within validity and it shall be a firm commitment.
 Salient terms shall be indicated in addition to the amount.
 Issuing of LOI is not mandatory and instead Purchase Order
can straight away be issued.
 LOI shall be regularized by a PO.
 All PO shall be prepared and released through SAP.
 PO shall be issued to vendor in duplicate and the vendor shall
sign and return one copy as a token of acceptance of PO.
 Annual rate contract with approved vendors wherever possible
may be entered into for supply of regular consumables on
staggered delivery basis to reduce the inventory levels.
 Issue of P.O. – Copy to
consignees, Finance, user
dept
 PO amendment
 Receipt of PBG
 Approval of QA/QC, Drawing
 Manufacturing at Vendor’s
Place
 Inspection by IOC at
Supplier’s works
 Third Party Inspection (TPI)
 Joint Inspection
 Acceptance on Factory Test
Certificates/TPI report
 Despatch Clearance (DC)
 Way bill
 Despatch of material
 Payment and Original
document collection
 Receipt of material
 Inspection at our Store/site
 Storage
 GRN after acceptance of
materials
 Issue
 Return
 Reconciliation
 Disposal
Time Schedule For Finalising/Issue Of Orders:
 Lead time for placing the PO is vital to control inventory levels
of regular consumption materials and spares.
 File movement shall be recorded for monitoring lead time for
review of GM on monthly basis.
 Time frame for finalization of tenders from the date of receipt of
Purchase Requisition:
 Global / Press Tender – 18 Weeks
 Limited Tender – 12 Weeks
 Proprietary /Single Tender – 9 weeks
 In case of single bid system, the time shall be reduced by one
week.
A store is a place used for
 Storage - accumulation – safe holding or keeping of goods
 Maintaining proper condition
 Protecting materials from deterioration/weather
 Easy identification, accessibility, handling and accounting.
 Receipt
 Inspection
 Material handling
 Store keeping
 Issue/return
 Identification of non-moving and surplus items
 Physical verification and reconciliation of items
 Raising of indent – IC items
 Equipment spares– Mech/Elec/T&I
 Mainline spares – C&W materials, Pipe, Leak clamp, Oil absorbent
pad, weld+end etc

 Operations Materials – Corrosion Inhibitor, DRA Lubricants, Dip

tape, Oil/water finding paste, thermometer, hydrometer etc
 Construction Materials
 Construction Left-over Materials (Surplus)

 Scrap
 Receipt of PO Copy from purchase section / PLHO.
 Insure receipt of PBG in time, checking and forwarding to finance.
 Receipt of drawing and QAP & Drawing, approval by indenting
department and forwarding to supplier, TPI and receiving station as
the case may be.
 Receipt of inspection report and issuance of DC from purchase
section.
 Issuance of road permit and follow up with the supplier for supply of
materials in time.
 Negotiation of GC note from bank by purchase section.
 Follow up for delivery to stores / collection of material from
transporter Godown.
 Proper checking the documents and taken into stores after entry.
 Physical checking of materials and reconciliation with the
documents, Invoice & packing list.
 Discrepancy if any – Recorded on transporter copy of CG note.
Claim shall be lodged on transporter / supplier and insurance
company.
 Inspection note to concerned department for inspection.
 If inspection is OK , GRN to be prepared. In case of rejection
supplier shall be informed for replacement / rectification.
 Materials shall be placed at available location in SAP or location
shall be created in SAP for placing the materials.
 Materials is also received from other unit through STO.
Issue of Materials :-
 Materials are issued from stores to indenting department/stations
under base upon receipt of valid reservation.
 Materials are Transferred to other units through STO
 No reservation is required for issuance of materials purchased under
A/F through SAP Order or direct consumable items purchased
without code No.
 Reservation shall be Prepared strictly through PMO order except
fuel / lube / some chemical etc.
 Negative reservation is required for taking back unutilised materials
in stores.
Stock verification cycle:
 Item value exceeding Rs. 5 lakh – Once in six Months.
 Exceeding Rs.1 lakh and up to Rs. 5 lakh - once in year.
 Exceeding Rs.2,5000 and up to Rs. 1 lakh- once in three year.
 Exceeding Rs.5,000 and up to Rs. 25,000- once in five year
 All remaining items below Rs.5,000- Random basis every year.
 Materials in-charge should verify by surprise check, items liable
to pilferage at such intervals as he deems fit and keep records of
the same.
 Any large discrepancies found as a result of stock verification
between physical stock and the stock as per SAP shall be
investigated soon by the Materials Officer who will make a
detailed report thereon & submit to SMTM/CMTM. Any
adjustment to be made as a result of this shall be made on the
basis of such reports supported by necessary documentation.

 Condition Monitoring
 Financial Definition:
 The sum of the value of raw materials, fuels & lubricants, spare parts,
maintenance consumables, semi-processed materials and finished
goods at any given point of time.

 Operational Definition:
 The amount of raw materials, fuels, lubricants, spare parts and semi-
processed material, stocked for smooth running of pipelines.
 Since these resources are idle when kept with stores, inventory is
defined as an idle resource of any kind having an economic value.
 Time Factor - The "lead time"
 Uncertainty Factor - Inventories are maintained as buffers to meet
uncertainties in demand, supply and movements of goods. To overcome
stock out during shortages.
 Cost Factor - Bulk buying, movement and storing brings down the cost -
thus inventory.
 To avoid stock out in the period of shortages.
Why Inventory Control?
 Costs Money ~20-25%

• Interest on Cost of Material

• Space/Building etc
• Utilities
• Manpower
• Insurance
• Shelf life – shrinkage/obsolescence
• Loss – Theft/Pilferage/Disaster
 Inventory Control Techniques:
 ABC Analysis
 Periodic Review System
 Re-order Point System
 Classification of inventory:
 ABC Analysis
 VED Analysis (Vital, Essential, Desirable)
 FSN Analysis (Fast, Slow, Non-moving)
 XYZ Analysis
 HML Analysis (High, Medium, Low Price)
 SDE Analysis (Scarce, Difficult, Easy to procure)
 Inventory management becomes very difficult if there are a large
number of items to be stocked e.g. in case of IOCL where each
Pipeline is having a stock of 10,000 to 20,000 items.
 ABC is basic analytical management tool which enables the
management to exercise selective control and place the efforts where
the results would be greatest.
 ABC analysis is based on the concept of "Vital Few" "Trivial Many".
  ABC classification shall be based on the total stock value of a material at a particular
SAP location:-
Category Value * Periodicity

A Exceeding Rs.5 Lakh Once in six months

B Exceeding Rs.1 Lakh up to Rs.5 lakh Once in a year

C Exceeding Rs.25,000.00 & up to Rs.1 Lakh Once in three years

D Exceeding Rs.5,000.00 & up to Once in five years

Rs.25,000.00
E Up to Rs.5,000.00 on random basis each year.

(*Per material code number as per SAP location.)

• Important Note: An A class item need not necessarily be a fast moving item.
Alternatively C class may or may not be a fast moving item. ABC analysis is based
only on the value of consumption.
 Usage of ABC Analysis:
 To count the accuracy of the inventory in a cost effective manner.
 An inventory controller shall concentrate more on the A class items for
reducing the inventory as concentrating on only 5% to 10% of the total
items shall be helpful in reducing inventory of 60% to 80% of the value.
 Any reduction in lead time of A class items shall result in reduction in
inventory, so procurement manager will workout with suppliers to
reduce the lead time.
 On issue of materials, Tight control on A class, Moderate control on B
class, Loose Control on C class.
 “A” – Class items:
 Tighter and accurate procedures are essential for "A" category items
relating to:
 Forecasting
 Material Planning
 Value Analysis
 Lead Time Analysis
 Safety Stock Determination
 Material Consumption Control
 Physical Stock Verification
 Accounting & Inspection
 “B” – Class Items:
 The stocking policy for 'B' items need not be highly sophisticated.
 For the items which are available ex-stock or off-the-shelf or in the
near proximity, the re-order level shall be fixed at 3 1/2 - 4 months
stock.
 Periodic review system & re-order point system to be followed for
these items.
 “C” – Class Items:
 Procurement for these items shall be made in one or two lots per
annum.
 'C' items shall be reviewed once a year.
 VED – Analysis : Vital, Essential, Desirable
 This analysis is mainly used for spares.
 Vital: Items whose stock-out will result in stoppage of the plant
resulting in very high cost due to loss of production.
 Essential: Items required for smooth running of the Unit. Non-
availability will not result in stoppage of plant. But may affect
production.
 Desirable: non availability of these items which will not immediately
affect production. Their availability will result in higher efficiency.
 XYZ Analysis:
 Based on inventory values of items. `X‟ category items has very high
inventory value whereas a `Z‟ category item has very slow inventory
value.
 XYZ would be categorized as under:
 X - Items having stock value > Rs. 5.0 lakh
 Y - Items having stock value > Rs. 1.0 lakh to Rs. 5.0 lakh
 Z - Items having stock value < Rs. 1.0 lakh
 HML – High, Medium, Low:
 High unit price (> Rs 1.00 lakh), medium unit price Rs 50,000.00 to Rs
100.000.00), low unit price (up to Rs 50,000.00) of the items.

 SDE – Scare, Difficult, Easy (to procure):

 Items under this category will be Pipeline unit specific. The
classifications can be effectively utilized for proper selective inventory
control.
 Surplus:
 Non-moving items, spare parts of condemned assets, assets removed
from service get converted into surplus with due approval.

 Condemned Assets:
 Equipment removed from service after completion of its full life of
service
 Removed from service after up gradation
 Condemnation on other accounts like high running cost, poor service
etc.
 Disposal action initiated vide e-auction through MSTC
 Scrap:
 Generated during maintenance
 Modification of existing system
 Deterioration of condition due to ageing effect
 Leftover from Projects
 Write-off of condemned assets
 Disposal action initiated vide e-auction through MSTC
 Other
Indentor Vendor
Agencies

Legal Advisor Insurance

Material
Manager
Post Office Transporter

User / Site Inspector

Finance

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