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Introduction to MM &

Procurement of stock &


NS items
DR. Sunil Nandankar , SPMM

(spmm@nair.railnet.gov.in)
Public vs Private Procurement?
Public Procurement Framework in India

Statutory Framework
The Constitution of India Acts of Parliament

Rules and Regulations


Delegation of FPR, Orders of
General Financial Rules, 2017
GoI

Ministry of Finance Manuals

Procuring Entities’ Codes and Manuals

Detailed instructions Standard Bidding Documents


Why Material Management ??

Demand
≠ Supply

Non- Stock
Stock Items
Items

Regular requirement Non Regular requirement


WHAT IS MATERIAL MANAGEMENT ?
Materials Management Department deals with planning, organizing,
directing, controlling, and co-ordinating of all the activities concerned
with the flow of materials & related information into an organization
and its further movement to various users.

Indian Railways is one of the largest organizations in the country dealing


with public procurement.

Four essential needs of material management:


 To have sufficient material when needed.
 To pay lowest possible price matching with quality and
value.
 To minimize inventory investment.
 To operate efficiently.
Five Rs of Procurement
 Right Quality
 Objective, generic and measurable description
 Not indicate particular brand
 To the extent possible, based on national technical regulations
 Right Quantity
 Avoid purchasing quantities in excess
 Right Price
 Offers invited using fair, transparent and reasonable procedure
 Price is reasonable and consistent with the quality required.
 Right Time & Place
 Selected offer meets the requirement in all respects
 Bidding Document should contain time and place of delivery
 Right Source
 Vendor Registration based on capcity cum capability
 Vendor rating
Role of Materials Management
 5 Ms –
Men,
Machines,
Materials,
Money &
Management
 Profit margin = Profit/Cost
= Sale Price - Cost
Cost
 Sale Price is restricted by competition.
 Cost depends on
• Manpower,
• Materials,
• Other fixed costs.

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Functions of • Planning
Materials • Procurement
Management • Warehousing
Department • Inventory
in Indian Control
Railways • Scrap Disposal
• Distribution
• Value Analysis/
Cost Reduction
Stores Organization in Railways
RAILWAY BOARD

Member (T & RS )

AM/RS

ED1 ED2 ED3

Director1 Director2 Director3 Director4 Director5 Director6


ZONAL LEVEL
PCMM

CMM1 CMM2

Dy. Dy. Dy. Dy.


CMM1 CMM2 CMM3 CMM4

SMM1 SMM2 SMM3

AMM1
At Field Level At divisional
(Depot) level
Dy.
Sr. DMM
CMM

SMM DMM

AMM1 AMM2 ADMM

CDMS DMS CDMS


MM : Salient Features

 Zonal Railways: 17
 Production Units: 8
 Stock Items: 2,42,000 (Approx.)
 Stocking Depots: 306
 Non-Stock Items: Equally Large

Source: IR year book 2020-21


Expenditure on Purchases
(Excluding track related items & goods supplied as part of works)

Year Total Purchase (Rs. Crs)


1950-51 81.60
1960-61 177.90
1970-71 363.70
1980-81 1,377.10
1990-91 5,189.30
2000-01 10,835.00
2009-10 27,876.80
2010-11 29,099.00
2011-12 31,359.00
2014-15 42,764.00
2015-16 43,131.00
2016-17 43,347.00
2017-18 49,484.00
2018-19 62,134.00
2019-20 63,844.00
2020-21 50,092.45
Source: IR Year Book 2020-21
Scrap Sale Value (in Crores)
5000
4575
4500 4408 4333
4192
4002
4000
3525 3500 3495
3500 3248 3143
3000 2736 2801 2718
2500
2000 1833
Value (in crores)

1500 1364
1032
1000
500
0

Source: IR Year Book 2020-21


Year
Broad classification of procurement:
Value in Value in
1. Nature of purchase Crores Crores
(2019-20) (2020-21)

Stores for operation, repairs and 18,497 11,542


maintenance
2,210
Stores for construction 2375

Fuel 14,050 7285

Stores for manufacture of Rolling 29,086


Stock and purchase of Complete 28890
units

Total 63,844 50092


15
Share of procurement by

Zonal Railways & PUs


27
Railway Board
Other Sources

73

2. Purchase from Small Scale Sector and KVIC


= Rs. 4,421.75 crores.
3. Procurement from Public Sector Undertakings
= 17%; Other industries = 83%.
4. Value of Indigenous stores
= Rs. 49,639.26 crores (99%).
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Inventory Turnover Ratio

Year With fuel Without fuel


2018-19 6 9
2019-20 10 15
2020-21 12 13
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CLASSIFICATION OF STORES
Stock Non-stock
Uniform Demand/ One time demand, not
Consumption & recouped required repeatedly.
regularly. Stores Department does
 Planning, procurement, procurement only.
stocking, distribution, Not-stocked in depot.
inventory control & disposal Received directly by the
is Stores Department’s consignee’s or users
responsibility. Allocated to respective
Purchased for a contract head of account.
period Examples: Computer,
Stocked in Depots Printer, UPS, Furniture,
Examples: Wheel, Axle, Cartridge, TV,
Fan, Tubelight, A4 paper, Laptop……….
Registers, Uniforms, Paints,
Towels etc.
CLASSIFICATION contd…
Further Classification:
Ordinary Stores: Regular consumption.
Emergency Stores: Items do not ordinarily wear & tear but need
immediate replacement on breakage, these are long lead items.
Special Stores: Required for Works, excluding ordinary Stores.
Custody Stores: Purchased for Special works & charged to the
works, left in the custody of stores depot. Items for construction
of Rolling Stock.
Imprest Stores: Maintenance Units like running sheds, C&W sheds
needs a number of items, including consumables like oils/greases,
for repeated use. Items are normally charged off to final head of
account. Sanction of imprest normally 2/3 months’ requirement.
Recoup every month.

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Material Codification:
Stock Items- SEMI-Significant
PL Number: 90 35 058 3
Calculation of check digit

** ** *** *
A B C D
A-Main Group: Type of Equipment: 00-09 Steam Locos,
10-19 Diesel Locos, 20-29 Electric Locos, 30-39 C&W
items. (Total 76 Groups)
B-Sub Group: Basically major assemblies, form sub
groups. Brake fittings, Power Pack, Bogie items etc.
C-Serial number: Serial of item in the assembly. This
number by itself does not give clear idea of the item.
D-Check Digit: Important to check the correctness of the
PL No./ (Modulus 11, Ex: 38 981580, 30851116?).
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STOCK ITEMS – Planning by user.
1. Creation of new PL or inclusion of imprest for an existing item:
User submits a standardisation format with:
 Description.

 Specification.

 Rate and total value.


 EAC and its Justification.
 Nature of item.
 Major group.
 Funds availability.

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Stocking Proposal:
Renewal of imprest
 Immediately after end of financial year, prepare the requirement
vis-à-vis last 3 years consumption.
 Write justifications for increase in EAC, wherever more quantity is
required. Separate justification for ‘A’ category items in the
standardisation form in case of increase in EAC.
 Send to HQ office after funds provisioning/associate Accounts
vetting and sanction of DRM/CWM.
 Follow up with own HQ office till it reaches PCMM office.
 Since finance concurrence is required for ‘Ä’ category items, give all
the details to HQ officers for reply to finance.
 After finance concurrence and approval of PCMM, revised EAC is
entered in iMMS. Depot issues materials as per revised EAC.

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Demand Forecast:Stock Items
• EAC = Estimated Annual Consumption.
• EMC = Estimated Monthly consumption.
• AAC = Anticipated Annual Consumption.
• BASIS (Regular consumption Items)
• Past 3 years consumption, stock-outs considered
• Trend of past consumption
• Additional information on Current / future activity level;
phasing out of certain type of RS or other M&P

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Recoupment of Stock Items
1. Annual Indent/Estimate System (P-System):
• A fixed interval review system
• CP(12/24 months), IP

Calculation of Order Qty.


Net Quantity for Procurement = (IP + CP) X AMC –
(Stock + Dues) + Buffer Stock
Example: If Stock = 50 Nos, P.O. = 100 Nos
B.S. = 1 month, AMC = 10 Nos per Month
NPQ = (12 + 12) X 10 – (50 +100) + 10

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Net Requirement = [{(MC×IP)+(MC×CP)+(BSR)} – {SOH+CVD}]
= [{(100/12)×13)+((100/12)×12)+(100/12) ×1} – {97+0}]
= [{(108)+((100)+(8)} – {97}]
= [119]

MC= Monthly Consumption = AAC/12 , IP = Interim Period CP = Contract


Period, BSR = Buffer Stock Requirement, SOH= Stock on Hand, CVD =
Covered Dues.
2. Maxima-Minima Method (Q-System)

EOQ

MAX

MIN Re-Order Level

0
L T
Qty
TIME
BS
Item History Sheet from iMMS
Dealing with non-stock demands:
Planning of requirement is responsibility of
user.
Estimate: Most important point in preparation
of NSR is estimate.
 Recent LPR from own/Other Railways.
 market survey/ general inflation in case LPO is
more than one year old.
 In case no LPR is available, Budgetary Quotation.
 Budgetary quotation should include all-inclusive
cost up to the consignee (FOR destination, door
delivery), taking into account GST, ED, Freight,
Packing and other charges. Warranty as per
requirement.
Dealing with non-stock demands:

Generic description, specifications and


drawings.
Item similar to part no. XXXX of M/S YYYY is
not allowed. Detailed description should be
given.
If there is no other make/model suitable, PAC
to be issued.
Dealing with non-stock demands:
One item, one NSR. Multiple items can be
purchased if in a set.
Ensure -
No splitting.
No stock item is purchased through NS
inadvertently.
Nature of item, Purchase restriction,
Inspection required, D. P. required, Warranty
conditions etc.
Types of Stock/Non Stock Tenders
1. Global tenders

2. Advertised Tender or Open Tender (generally for items valuing over Rs


25 lakhs). Tender Committee for value beyond Rs. 50L.

3. Limited Tender/ Bulletin tender : value less than Rs 25 lakhs.

4. Special limited tenders: value of the purchase is more than Rs 25 lakhs


and limited tender instead of Advertised Tender, vital or safety and
urgency

5. Single tender: Low value/Urgent/PAC (Proprietary Article Certificate)


items.

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6. Quotation: from Cash imprest by Cash purchase.
PROCUREMENT OF STOCK/ NON-STOCK ITEMS
Revised SOP:
1. Tender Committee cases:
I. PHOD level, TAA is GM - Above 500 crores.
II. PHOD l, TAA AGM – 200 - 500 crores.
III. HOD level, TAA is PCMM – 10 - 200 crores.
IV. JAG level, TAA CMM –1 - 10 crores.
V. SS level TC – 0.5 – 1 Cr. (Only Stores & Finance members)
2. DA cases: DA powers:
VI. Dy. CMM – Up to 50L.
VII. SMM – Up to 10L.
VIII. AMM – Up to 5L.
3. Non-stock GeM items:
User deptt– Rs.25,000/- (self-certification), annual ceiling limit: 10L.
4. Local Purchase: 1L, single quotation: Rs. 25,000/-.
5. NS certification will be done by Sr. DMMs in divisions.
PROCUREMENT OF NON-STOCK ITEMS
6. Signing of NSRs and essentiality certificate –
(a) JS – Rs. 25,000/-
(b) SS- Rs. 25,000/- - 2L/-.
(c) JAG/SG – Rs. 2L/- - Rs. 15L
(d) SAG – Rs 15L – Rs 45L.
(e) PHOD/CHOD – Above Rs. 45L

7. Signing of PAC –
a) JS – up to Rs. 75,000/-
b) SS – Up to 2L.
c) JAG/SG – Up to Rs. 15L.
d) SAG – Up to Rs. 25L.
e) PHOD/CHOD – Above Rs. 25L.
PROCUREMENT OF NON-STOCK ITEMS

8. Vetting of NSRs for values above Rs. 2.5 L


(Safety/PN – Rs. 10L)
In case of sanctioned works where detailed
estimate has been sanctioned, vetting of NS
requisitions is not required
Vetting of P.O. – 8L (15 L for Safety/PN items)

9. Acceptance of stores received after DP expiry :


- Up to 6 months delay for order value up to 8
lakhs.
- Up to 21 days delay for order value 8-15 L.
- Above 15L, prior extension of D.P. required.
Proprietary Article Certificate
Maker’s Name & Address, & Name of Local Agent
I approve the above purchase & I certify that-
 (a) No other make/brand will be suitable
 (b) This is the only firm who is manufacturing/
stocking this item
 (c) A similar article is not manufacture/ sold by any
other firms which could be used in lieu of.
 NB: If (c) is deleted Purchase Power gets restricted to
Rs. 15 lacs/- only, else GM’s approval)
Stages of Post-contract performance

procurement
Contract Performanc

in
e

Contract award
Indian Railways
Tender evaluation

Tender solicitatio
n

Tender preparation

Requirement specificat
ion

Procurement Planni
ng

Need
38
Summary &
Questions??
Thank You

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