sip kamalakar final

ACKNOWLEDGEMENT

I would like to thank Mr. P. Srinivas Rao, Manager- Supply Chain, Hindustan Coca-Cola

Beverages Pvt. Ltd., Visakhapatnam, without whom this internship would have not been

achieved a completion. I am grateful to him for having taken time off his busy schedule and

guided me throughout the tenure. I express my gratitude to the Hindustan Coca-Cola

Beverages Private Limited (HCCBPL) for having given me an opportunity to work with them

and make the best out of my internship. My heartfelt gratitude also goes out to the staff and

employees at HCCBPL, Mr. Amir Hussain (Factory Manager), Mr. Ch. Srinivasulu

(Executive-HR), Mr. Hara Bhaskar (Executive- Finance), Mr. Anmol Kalsi (Team Lead-

Production) for having co-operated with me and guided me throughout the two months of

my internship period.

I thank my institute, GITAM Institute of International Business, for having given me this

opportunity to put to practice, the theoretical knowledge that I imparted from the program. I

thank the internship Functional Guide, Dr. D.Ravinath, and Industry Guide, Prof. Dr.

M.V.Lakshmi, for having guided and supported me through the course of the internship. I

would also like to thank Mr. M.V.S. Kameshwar Rao, for his advice and guidance towards

imparting a financial angel in the work.

I take this opportunity to thank my parents and friends who have been with me and offered

emotional strength and moral support.

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CERTIFICATE FROM COMPANY GUIDE

5th August 2010

To Whomsoever It May Concern

This is to certify that Mr. Hanumanthu Kamalakar, student of Master of Business

Administration (International Business), Gitam Institute of International Business, GITAM

University, Visakhapatnam, has successfully completed the following Project with Hindustan

Coca-Cola Beverages Pvt Ltd-Visakhapatnam.

PROCUREMENT MANAGEMENT: A case study on consumable Management

for HCCBPL

The duration of the project was from 21st April to 21st June 2010.

During his stint Mr. Hanumanthu Kamalakar has shown initiative to learn and a high level of

commitment to his work.

For Hindustan Coca-Cola Beverages Pvt Ltd.

P. Srinivas Rao

Manager- Supply Chain

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ABBREVIATIONS

PR: Purchase Requisition

PO: Purchase Order

AP: Accounts Payable

COA: Chart of Authority

PJV: Purchase Journal Voucher

RFA: Request for Authorization

VMF: Vendor Master File

YTD: Year to Date

GRN: Goods Receipt Note

SRN: Service Receipt Note

CGRN: Capital Goods Receipt Note

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DECLARATION

I, Kamalakar.H student of GITAM School of International Business, Vishakhapatnam hereby

declare that this Project Report is an original unpublished work done at Hindustan Coca-Cola

Beverages Pvt. Ltd., Visakhapatnam titled “Procurement Management: A Case-Study on

Consumables Management for HCCBPL, Visakhapatnam” as a partial fulfilment of Masters

of Business Administration (IB) degree. To the best of my knowledge, no piece of this report

work has been done and submitted by anyone in this regard.

Kamalakar.H

MBA (IB)

Roll No. 1226109113

2009-11 Batch

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EXECUTIVE SUMMARY

Coca-Cola, the product that has given the world its best-known taste was born in Atlanta,

Georgia, on May 8, 1886. Coca-Cola Company is the world’s leading manufacturer, marketer

and distributor of non-alcoholic beverage concentrates and syrups, used to produce nearly

400 beverage brands. It sells beverage concentrates and syrups to bottling and canning

operators, distributors, fountain retailers and fountain wholesalers.

Coca-Cola was the leading soft drink brand in India until 1977, when it left rather than reveal

its formula to the Government and reduce its equity stake as required under the Foreign

Regulation Act (FERA) which governed the operations of foreign companies in India. In the

new liberalized and deregulated environment in 1993, Coca-Cola made its re-entry into India

through its 100% owned subsidiary, HCCBPL, the Indian bottling arm of the Coca-Cola

Company. HCCBPL, Visakhapatnam is a COBO, bottling unit of Coca-Cola- the details of

which has been explained in the report.

Objective:-

The objective of the study lies in understanding the Supply Chain activities of HCCBPL and

analyzing the “PR to PO” process and therein evaluating the system on its performance

grounds. Secondly, under the action of Financial Supply Chain Management, the “Payables

Management” at HCCBPL, Visakhapatnam was evaluated and better measures have been

suggested to enhance the ongoing practices.

PR to PO process:-

The entire “PR to PO” process is a module wherein, an executive or employee requests for an

item or service and raises a PR, which in turn undergoes a series of approvals and scanners,

and finally turns into an PO. The approvals list includes the department HoD, Finance and

Supply Chain department. The PO copy so raised is used as a document of request, to receive

the goods or services from the vendors/ suppliers, and the invoice is raised accordingly.

Software Program:-

To enhance the “PR to PO” process, I have taken a real-time approach by using software

(program) to analyze the time for the process at each level of approval and then maintained

queues to make the work faster and accurate. The program created, would help in identifying

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the problem at a particular level of operations and then assign the stage in a ‘red’ or ‘green’

queue depending on the number of days spent at that particular stage.

Payables Management:-

The “Payables Management” at the organization is studied and efforts and suggestions have

been enlisted to develop the process. Alternative approaches towards the payable system have

been explained in the work and a three stage Financial Supply Chain approach has been

developed for the operations.

Inventory days as a benchmark:-

The entire work has been developed keeping in conscious the inventory status for the

materials. The company earlier has been using a fifteen days minimum inventory system and

has therefore put in ‘macro’ (mini- software program), to calculate the daily material

consumption and average available days of inventory left for the material. This source has

been taken as a reference, and all the assumptions and calculation have been made based on

these fifteen days of minimum inventory.

Annexure 1- softcopy

Conclusion:-

Finally, the impact of the practices followed by Coke has been discussed, and it has been

evaluated and compared with the alternative suggested plans, benefits of the same on the

suppliers, dealers and banks has been discussed. The study has elaborately discussed the

strategies followed at Coke and an effort has been put in, to enhance these practices and

minimize the time of action, and importantly reducing the system wide costs.

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Chapter

1

Introduction

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INTRODUCTION

Coca-Cola, the corporation nourishing the global community with the world’s largest selling

soft drink concentrates since 1886, returned to India in 1993 after a 16 year hiatus, giving

new thumbs up to the Indian soft drink market. In the same year, the Company took over

ownership of the nation’s top soft-drink brand and bottling network. It’s no wonder that the

brands have assumed an iconic status in the minds of the world’s consumers.

Coca-Cola India is among the country’s top international investors, having invested more

than US$ 1 billion in India in the first decade, and further increasing to another US$100

million in 2003 for its operations.

The Indian operations comprises of 56 bottling operations, 27 owned by the Company, with

another 29 being owned by franchisees. That apart, a network of 21 contract packers

manufactures a range of products for the Company. On the distribution front, 10-tonne trucks

– open bay three-wheelers that can navigate the narrow alleyways of Indian cities –

constantly keep the brands available in every nook and corner of the country’s remotest areas.

These huge operations do need a cost effective and timely distribution of all materials and

services, which in turn plug in to an effective Supply Chain maintained in the organization.

The Supply Chain system work as an integration of purchasing, production and distribution

processes. The procurement of materials or services is done via global and local suppliers; the

global vendors are selected by the corporate (Coca-Cola India Pvt. Ltd.), while that of local it

is done by the HCCBPL.

The consumable management deal with the daily procurement from local vendors through a

series of approvals via PR to PO process. And the services and materials are received

accordingly. After the receipt of the same, an appropriate payment towards the service is paid

thereby.

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OBJECTIVE

Understanding the Supply Chain activities of HCCBPL, Visakhapatnam

Analyzing the “PR to PO” process and therein evaluating the system on its

performance

Evaluating the “Payable Management System” for HCCBPL, Visakhapatnam

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Supply Chain Management- An Overview

Fierce competition in today’s global markets, the introduction of products with shorter life

cycles, and the heightened expectations of customers have forced business enterprises to

invest in, and focus attention on, their supply chains. This, together with continuing advances

in communications and transportation technologies (e.g. mobile communication, Internet, and

overnight delivery), has motivated the continuous evolution of the supply chain and of the

techniques to manage it effectively.

In a typical supply chain, raw materials are procured and items are produced at one or more

factories, shipped to warehouses for intermediate storage, and shipped to retailers or

customers. Consequently, to reduce costs and improve service levels, effective supply chain

strategies must take into account the interactions at the various levels in the supply chain. The

supply chain, which is also referred to as the logistics network, consists of suppliers,

manufacturing centres, warehouses, distribution centres, and retail outlets, as well as raw

materials, work-in-process inventory, and finished products that flow between the facilities.

We define supply chain management as follows:

Supply chain management is a set of approaches utilized to efficiently integrate suppliers,

manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the

right quantities, to the right locations, and at the right time, in order to minimize system wide

costs while satisfying service level requirements.

Difficulties of Supply Chain Management

Supply chain strategies cannot be determined in isolation. They are directly affected

by another chain that most organisations have, the development chain that includes

the set of activities associated with the new product introduction.

It is challenging to design and operate a supply chain so that total system wide costs

are minimized, and system wide service levels are maintained.

Uncertainty and risk are inherent in every supply chain.

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Key Concepts Used in Report

Customer service management

Procurement

Product development and commercialization

Manufacturing flow management/support

Physical distribution

Outsourcing/partnerships

Performance measurement

a) Customer service management:

Customer Relationship Management concerns the relationship between the

organization and its customers. Customer service provides the source of customer

information. It also provides through with real time information on promising dates

and product availability through interfaces with the company’s production and

distribution operations. Successful organizations use following steps to build

customer relationships:

Determine mutually satisfying goals between organization and

customers

Establish and maintain customer rapport

Produce positive feelings in the organization and the customers

b) Procurement process:

Strategic plans are developed with suppliers to support the manufacturing the

manufacturing flow management process and development of new products. In firms

where operations extend globally, sourcing should be managed on a global basis. The

desired outcome is a win-win relationship, where both parties benefit, and reduction

times in the design cycle and product development is achieved. Also, the purchasing

function develops rapid communication systems, such as electronic data interchange

(EDI) and Internet linkages to transfer possible requirements more rapidly. Activities

related to obtaining products and materials from outside suppliers. This requires

performing resource planning, supply sourcing, negotiation, order placement, inbound

transportation, storage and handling and quality assurance. Also, includes the

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responsibility to coordinate with suppliers in scheduling, supply continuity, hedging,

and research to new sources or programmes.

c) Product development and commercialization:

Here, customers and suppliers must be united into the product development process,

thus to reduce time to market. As product life cycles shorten, the appropriate products

must be developed and successfully launched in ever shorter time schedules to remain

competitive. According to Lambert and Cooper (2000), managers of the product

development and commercialization process must:

Coordinate with customer relationship management to identify and

identify customer-articulated needs

Select materials and suppliers in conjunction with procurement, and

Develop production technology in manufacturing flow to manufacture

and integrate into the best supply chain flow for the product/market

combination.

d) Manufacturing flow management process:

The manufacturing process is produced and supplies products to the distribution

channels based on past forecasts. Manufacturing processes must be flexible to respond

to market changes, and must accommodate mass communication. Orders are

processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes

in the manufacturing flow process lead to shorter cycle times, meaning improved

responsiveness and efficiency of demand to customers. Activities related to planning,

scheduling and supporting manufacturing operations, such as work-in-process storage,

handling, transportation, and time phasing of components, inventory at manufacturing

sites and maximum flexibility in the coordination of geographic and final assemblies

postponement of physical distribution operations.

e) Physical distribution:

This concerns movement of a finished product/service to customers. In physical

distribution, the customer is the final destination of a marketing channel, and the

availability of the product/service is a vital part of each channel participant’s

marketing effort. It is also through the physical distribution process that the time and

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space of customer service become an integral part of marketing, thus it links a

marketing channel with its customers.

f) Outsourcing /partnerships:

This is not just outsourcing the procurement of materials and components, but also

outsourcing of services that traditionally have been provided in-house. The logic of

this trend is that the company will increasingly focus on those activities in the value

chain where it has a distinctive advantage and everything else it will outsource. This

movement has been particularly evident in logistics where the provision of transport

warehousing and inventory control is increasingly subcontracted to specialists or

logistics partners. Also, to manage and control this network of partners and suppliers

requires a blend of both central and local involvement. Hence, strategic decisions

need to be taken centrally with the monitoring and control of supplier performance

and day-to-day liaison with logistics partners being managed at a local level.

g) Performance measurement:

Experts found a strong relationship from the largest arcs of supplier and customer

integration to market share and profitability. By taking advantage of supplier

capabilities and emphasizing a long-term supply chain perspective in customer

relationships can be both correlated with firm performance. As logistics competency

becomes a more critical factor in creating and maintaining competitive advantage,

logistics measurement becomes increasingly important because the difference

between profitable and unprofitable operations becomes narrower. A.T. Kearney

consultants (1985) noted that firms engaging in comprehensive performance

measurement realized improvements in overall productivity. According to experts

internal measures are generally collected and analyzed by the firm including

Cost

Customer service

Productivity measures

Asset measurement, and

Quality

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Chapter

2

Review Of

Literature

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REVIEW OF LITERATURE

Procurement and relationship management trends in FM services

By Tero J.T. Lehtonen and Anssi I. Salonen

Helsinki University of Technology, CEM Facility Services Research

Finland

Abstract:

Although services are increasingly taking up a larger part of any organization’s purchasing

expenditures, relatively few academic studies into buying business services are available.

One important part of the business service sector is facilities management (FM) services. The

aim of this paper is to recognize the procurement trends of FM services and to describe the

partnership control mechanisms that contribute to the success of FM partnerships. The results

are based on a questionnaire, which was carried out in Finland. As well as contributing to the

supply chain and relationship management literature, this study offers potential benefits to

both FM service providers and buyers in terms of how to formulate successful relationships

and to improve the performance and efficiency of partnering relations. It was found out that a

similar transition towards closer relationships and bigger purchase entities is taking place in

the FM context as well as in other industries. However, some exceptions were also identified.

These exceptions could be explained partly by the novelty of the partnering phenomenon and

partly by the operational nature of most FM services. In most cases, the choice of the

partnering approach is related to the forming of wider service packets. When implementing

partnering relations the role of top management is to set up the shared values and visions.

Once they have established these in the organization they do not have any remarkable role in

relationship management. During the ongoing partnership, the operative level runs the daily

initiative, development and problem solving based on ad hoc procedure.

This study has attempted to clarify the procurement and relationship management trends in

business services, particularly in the FM setting. It was discovered that a transition towards

closer relationships and bigger purchase entities is taking place in FM in the same way as in

other industries. However, some exceptions were also identified. These exceptions could be

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explained partly by the novelty of the partnering phenomenon in the FM context and partly

by the highly operational nature of most FM services. Since the formation and maintenance

of partnerships are costly and time-consuming processes, organizations should adopt them

only after rigorously conducted strategic analyses. However, there is a gap between theory

and industrial practice as only few organizations have a sourcing strategy for FM services. In

the future, companies should evaluate each sourcing situation more thoroughly and decide

which relationship type to apply. In contrast to the prevailing trends in other industries, there

was increase in the size of supplier bases in FM.

This might be partly due to the organizations outsourcing more of their facilities related

functions during the last years and partly due to the shift from using a sole supplier to using a

number of specialist partners. As the lack of sourcing strategies, this also mirrors the fact that

the outsourcing and procurement practices of FM services are still under transformation

phase. Since organizations have not yet recognized the importance of the relational risk and

formalized their management mechanisms of providing services in closer relationship, there

is still strong potential for organizations to tap into by adopting relational risk management

schemes and more sophisticated relationship management methods already in use in matured

industries. In addition to the business perspective, relationship success in FM services

includes the end-user perspective, which emphasizes the importance of site-level operations.

This, alongside the fact that FM services have usually only minor strategic value, could also

explain why little attention is paid to the management of FM partnering relations in the

strategic overall management of the company.

This study also offers potential benefits to service providers in terms of how to formulate

successful relationships and manage buyer’s perception of service quality. Firstly, as

partnerships yield competitive advantage only through effective management, suppliers

should exploit the success factors mentioned in the paper. Secondly, suppliers may reap the

potential benefits of partnerships fulfilling buyer expectations by focusing to their front-line

staff’s friendliness and ensuring good end user feedback.

Altogether, the study contributes to the relationship management literature from the business

services point of view. The results could be exploited by both service provider and buyer

organizations to improve the performance and efficiency of partnering relations. However,

some limitations should be recognized and taken into account when interpreting our findings.

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The Supply Chain Approach to Planning and Procurement Management

By

Gregory A. Kruger

February 1997 Hewlett-Packard Journal

This paper describes the processes and equations behind a reengineering effort begun in 1995

in the planning and procurement organizations of the Hewlett-Packard Colorado Springs

Division. The project was known as the supply chain project. Its objectives were to provide

the planning and procurement organizations with a methodology for setting the best possible

plans, procuring the appropriate amount of material to support those plans, and making up-

front business decisions on the costs of inventory versus supplier response time (SRT),*

service level to SRT objectives, future demand uncertainty, part lead times, and part delivery

uncertainty.

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Chapter

3

Industry

and

Company Profile

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Non-alcoholic beverage market in India

The majority of urban and suburban Indians consume non-alcoholic store bought beverages

“less than once a day” suggesting a large untapped market potential. In order to increase

consumption and penetration of such beverages however, manufacturers will have to address

the two primary reasons why some Indians abstain entirely, that is, health concerns and

undesirable taste - as highlighted in Boston Analytics’ survey of 8300 people across 15 cities.

Approximately 120 billion litres of beverages are consumed by Indians every year, but only

5% represent store-bought packaged beverages. The majority of Indian consumers (75%) still

consume non-alcoholic store-bought beverages ‘less than once a day’, highlighting a large

untapped market opportunity, particularly in the carbonated drinks and juice or juice-based

markets (estimated to be worth $1.5 Billion and $.25 billion respectively). While

consumption frequency decreases with age, it is found to increase with income levels, except

in the top-most economic strata of society. Health concerns remain the primary reason for

not consuming non-alcoholic store-bought beverages at all. Yet of the 40+ brands covered in

Boston Analytics’ study, none held a definitive position in this regard either positively or

negatively. Boston Analytics’ study also revealed that 29% of those who consume non-

alcoholic store bought beverage beverages do so at a fixed time during the day, suggesting

that carbonated beverages have become a part of life for a significant portion of the Indian

consumer market. Product taste is the primary driver of brand choice for carbonated, juice-

based and sports/energy drinks. While consumptions patterns are somewhat similar across

different tiered cities, reasons for not consuming non-alcoholic store bought beverages vary

considerably. This study has implications for both the marketing and product development of

carbonated, juice based and sports/energy drinks. Significant opportunities exist for

manufacturers to expand these markets through both greater consumption and greater

penetration.

The store-bought non-alcoholic beverage market in India is significantly under

penetrated, even in urban and suburban areas. 75% of those interviewed for this study

report consuming store bought non-alcoholic beverages less than once a day. While

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consumption increases with income (with the exception of the highest household

income level), it decreases with age.

One possible hypothesis for low penetration is the lack of routine consumption. Only

29% of carbonated beverage consumers, 27% of fruit or juice based drink consumers

and 9% of energy or sports drink consumers report consuming such beverages at a

regular time each day.

Overall, health concerns was the most common reason for abstaining from consuming

store bought non-alcoholic beverages followed by a desire to prepare one’s own fresh

beverages. Significant differences exist however by product category, i.e., carbonated

beverages, fruit drinks and energy or sports drinks in terms of reasons for abstaining

There are numerous initiatives which manufacturers, distributors and marketers can

take in order to increase their market share in these product categories. For

example: o Non-alcoholic beverage brands do not appear to be positioning themselves

or differentiating themselves along the brand attributes that matter most to consumers

in terms of product/brand selection and reasons for consuming and/or not consuming.

As with most product categories in India, consumption behaviour and preferences differ

dramatically across cities in India. While Tier 1 cities (or the largest metros in India) report

the highest consumption, significant differences exist among these cities, e.g., in terms of the

time of day store-bought non-alcoholic beverages are consumed, preferred brands for

carbonated beverages, reasons for consuming a particular product type, etc.). Such

differences demonstrate the need for carefully targeted marketing campaigns that appeal to

the needs, behaviours and preferences of local communities.

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Hindustan COCA-COLA Beverages Pvt. Ltd

Coca-Cola (also known as Coke, a name that was trademarked by The Coca-Cola Company

after it was discovered many people called it by that particular name) is a very popular cola (a

carbonated soft drink) sold in stores, restaurants and vending machines in more than 200

countries. It is produced by the Coca-Cola Company (NYSE: KO), which is also often

referred to as simply Coca-Cola or Coke. Coke is one of the world’s most recognizable and

widely sold commercial brands; its major rival is Pepsi.

Coke was originally intended as a patent medicine when it was invented in the late 19th

century, Coca-Cola was bought out by businessman Asa Griggs Candler, whose marketing

tactics led Coke to its dominance of the world soft drink market throughout the 20th century.

Although faced with critiques of its health effects and various allegations of wrongdoing by

the company, Coca-Cola has remained a popular soft drink to the present day It was initially

sold as a patent medicine for five cents a glass at soda fountains, which were popular in the

United States at the time thanks to a belief that carbonated water was good for the health. The

first sales were made at Jacob's Pharmacy in Atlanta, Georgia, on May 8, 1886, and for the

first eight months only nine drinks were sold each day. Coca-Cola was sold in bottles for the

first time on March 12, 1894, and cans of Coke first appeared in 1955. By 1888, three

versions of Coca-Cola - sold by three separate businesses were on the market.

On February 7, 2005, the Coca-Cola Company announced that in the second quarter of 2005

they planned a launch of a Diet Coke product sweetened with the artificial sweetener

sucralose ("Splenda"), the same sweetener currently used in Pepsi One. The company

actually produces concentrate for Coca-Cola, which is then sold to various Coca-Cola bottlers

throughout the world. The bottlers, who hold territorially-exclusive contracts with the

company, produce finished product in cans and bottles from the concentrate in combination

with filtered water and sweeteners. The bottlers then sell, distribute and merchandise Coca-

Cola in cans and bottles to retail stores and vending machines. Such bottlers include Coca-

Cola Enterprises, which is the single largest Coca-Cola bottler in North America and Europe.

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The Coca-Cola Company also sells concentrate for fountain sales to major restaurants and

food service distributors.

The Coca-Cola Company has on occasion introduced other cola drinks under the Coke brand

name. The most famous of these is Diet Coke, which has become a major diet cola but others

exist, such as Cherry Coke, Coke Zero, and Vanilla Coke. The Coca-Cola Company owns

and markets other soft drinks that do not carry the Coca-Cola branding, such as Sprite, Fanta,

and others. The actual production and distribution of Coca-Cola follows a franchising model.

The Coca-Cola Company only produces a syrup concentrate, which it sells to various bottlers

throughout the world who hold Coca-Cola franchises for one or more geographical areas. The

bottlers produce the final drink by mixing the syrup with filtered water and sugar (or artificial

sweeteners) and fill it into cans and bottles, which the bottlers then sell and distribute to retail

stores, vending machines, restaurants and food service distributors. The bottlers are normally

also responsible for all advertisement and other sales initiatives within their areas.

Pepsi is often second to Coke in terms of sales, but outsells Coca-Cola in some localities. In

India, Coca-Cola ranks third behind the leader, Pepsi-Cola, and local drink Thumbs Up.

However, The Coca-Cola Company purchased Thumbs Up in 1993. The products of the

company reach consumers and customers around the world through a vast distribution

network made up of local bottling companies. These bottlers are located around the world,

and most are independent businesses. Using syrups, concentrates and beverage bases

produced by the Coca-Cola Company, their global bottling system packages and markets

products, then distributes them to more than 14 million retail outlets worldwide. The Coca-

Cola Company is committed to assisting its bottlers with the functions of an efficient bottling

operation and initiating quality systems to ensure the highest quality products for their

consumers.

The trademark "Coca-Cola" was registered with the U.S. Patent and Trademark Office in

1893, followed by "Coke" in 1945. The unique contour bottle, familiar to consumers

everywhere, was granted registration as a trademark by the U.S. Patent and Trademark Office

in 1977; an honour awarded very few packages. The most valuable assets happen to be the

trademarks they possess. For Coca-Cola, the most drunk soft drink on earth is one of the

world s best-known and most admired trademarks, recognized by more than 90 percent of the

world s population. Interestingly, the world that is touched by the cherished drinks for every

moment, the Coca-Cola trademarks happen not only to be their most valuable assets but of

| P a g e 22

the entire earth. The business system of the Company in India directly employs

approximately 6,000 people, and indirectly creates employment for many more in related

industries through our vast procurement, supply and distribution system. On the distribution

front, 10-tonne trucks, open-bay three-wheelers that can navigate the narrow alleyways of

Indian cities, ensure availability of our brands in every nook and corner of the country. The

term soft drink originally applied to carbonated drinks made from concentrates, although it

now commonly refers to almost any cold drink that does not contain alcohol.

Hindustan Coca-Cola Beverages Private Limited is an Indian subsidiary of the US based

Coca-Cola Company. The company-owned Bottling arm of the Indian Operations, Hindustan

Coca-Cola Beverages Private Limited is responsible for the manufacture, sale and

distribution of beverages across the country. Coca-Cola India is among the country’s top

international investors, having invested more than US$ 1 billion in India within a decade of

its presence and further pledged another US$ 100 million in 2003 for its operations. It is the

world’s largest selling soft drink since 1886. The Coca-Cola Company returned to India in

1993 after a gap of 16 years giving new Thumbs up to the Indian Soft Drink Market and

took over the ownership of the nation's top soft-drink brands and bottling network. The vast

Indian operations comprises 25 wholly company owned bottling operations and another 24

franchisee owned bottling operations and a network of 21 contract packers also manufactures

a range of products for the Company.

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HCCBPL- Visakhapatnam

Hindustan Coca- Cola Beverages Private Limited came into existence after the then

established Gold-Spot Company was overtaken by the Coca-cola in the year 1998. Hindustan

Coca- Cola Beverages Private Limited is situated in a total area of 3.62 acres in Industrial

Area, Manchukonda Gardens within city limits of Visakhapatnam. The entire plant is divided

into four major segments, namely, The Water Treatment Plant, Syrup Preparation Plant,

Carbon-Dioxide Preparation Plant, and Administration.

The installed capacity of the plant is 600 BPM single line. The company comes under the

category of aerated waters manufacturing. The plant is designed to produce both 300 ml and

200 ml pack size of Returnable Glass Bottles (RGB) of all coca-cola brand soft drinks viz;

Coca- Cola, Fanta, Sprite, Thums-up and Limca and also Kinley soda 300ml.

In addition to a total no. of 279 permanent employees, the company also gives employment to

various contract workers and contractors.

The company is headed by Area General Manager, who in turn leads of departmental heads

viz; Plant Manager, Quality Assurance Manager, Sales Manager, Finance Manager and HR

Manager.

The sales territory of the company is spread over three districts within the state, namely,

Visakhapatnam, Vizianagaram and Srikakulam in addition to a high sale in the

Visakhapatnam City.

The company sells not only the products produced in Visakhapatnam but also other products

of Coca-cola sourced from other manufacturing units like pet bottles of 500 ml to 2ltrs pack

of all brands, Maaza tetra pack and 250 ml RGB, Kinley Club soda and Kinley water in Pet

bottles and 330 ml. cans of all flavours through its distribution network.

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Supply Chain Management at HCCBPL-Visakhapatnam

A successful Supply Chain requires a high degree of functional and organizational

integration. Traditionally, organizations have decided the responsibility for managing the

flow of materials and services among three departments: Purchasing, Production and

Distribution. HCCBPL, Visakhapatnam has a supply chain which is integrated with all the

above mentioned departments.

The flow of materials initiates with the procurement of raw materials or negotiation and

purchase of a services, from outside suppliers. Raw materials are then stored maintaining an

ideal inventory in the plant and later are consumed in a particular mentioned production plan.

It undergoes a series of transformation and filtration processes to end up with the desired end

product. The end products are then kept as finished goods and are then shipped by means of

transportation services, via, suppliers to distribution centres and from distribution centres to

retailers. This cycle of preparing and distributing repeats over and over, as the HCCBPL

responds to customer’s demand.

The internal supply chain of HCCBPL utilizes a seamless information and materials control

system from distribution to purchasing, integrating marketing, finance, accounting, and

operations. Efficiency and electronic linkages to customers and suppliers are emphasized.

HCCBPL still considers its suppliers and customers as independent entities.

Managing of internal supply chain activities of HCCBPL involves issues of forecasting,

inventory management, aggregate planning, resource planning, scheduling and distribution.

| P a g e 25

Internal Supply Chain of HCCBPL, Visakhapatnam

Working Environment and Business evaluation at HCCBPL, Visakhapatnam

The supply chain of HCCBPL, Visakhapatnam is an efficient supply chain, which

coordinates the flow of materials and services so as to minimize inventories and holding cost,

and similarly maximizing resource usability and negotiating the goods and services at ideal

choices. HCCBPL produces FMCG products and hence, the demand fluctuations are mostly

predictable- varying on time of consumption and season.

The focus of the HCCBPL supply chain is on the efficient flow of materials and services, that

is, keeping inventories to a minimum. Because of the markets HCCBPL serve, product

designs that last a long time, new introductions are infrequent, and variety is small. Price of

the product plays an important role in the markets of cool drinks. For HCCBPL price is

crucial to win a customer; therefore, contribution margins are low and efficient is important.

Consequently, HCCBPL competitive priorities are consistent qualities and on-time delivery.

Design Features of Supply Chain of Hindustan Coca-Cola Pvt. Ltd

HCCBPL production has high volumes of standardised products, so it follows a line flow

strategy. The higher is the efficient supply chain that a firm is, the more likely it is to have a

line flow strategy that supports high volumes of standardised products.

In HCCBPL high inventory turns are desired because inventory must be kept low to achieve

low costs. HCCBPL works with their suppliers and distributors to shorten lead times, and

care is also taken to use measures that do not appreciably increase cost.

| P a g e 26

Suppliers Customers

FACTORS HCCBPL SUPPLY CHAIN

Operating Strategy Make to stock, emphasis on high volume

standardised products

Capacity Cushion Low

Inventory Investment Low, Enable high inventory turns

Lead Time Shorten, but do not increase costs

Vendor Selection Emphasis low prices, Consistent Quality,

On-time delivery

Chapter

4

Data Analysis

| P a g e 27

Purchase Requisition

Procedural steps involved in preparing a Purchase Requisition are as follows:

PR is raised by individual Department associates in COLA

PR gets approved by the respective HoD

Post HoD approval, the same to be approved by finance & tracked for cost centres/

budgetary availability.

Post finance approval, available for making new purchase order.

Finally, it is verified, ensuring the requisition is complete in all respects.

Now after the verification of PR is done for its completion, the respective PO is raised for the

item.

Purchase Order

Sr. Supply Chain Executive raises the orders as per the prescribed procedure, seek necessary

approvals as per COA, and distribute PO copies respective departments. Finance Manager

approves the purchase order raised by the Supply Chain department as per COA.

If the value of requisition is more than Rs.5000 float inquires (verbal/written) for

quotations to be asked.

If the value of the purchase requisition is between Rs.10000 and Rs.25000 a minimum

of two written quotations are required.

| P a g e 28

If the value of the purchase is more than Rs.25000 minimum three quotations are

required.

Prepare comparative quote analysis on receipt of the quotations and evaluate to select

the source. In case required numbers of quotations are not obtained as per the

procedure, deviation to this extent is to be approved by AGM. At Bid waiver section

of comparative quote form.

Initiate negotiation with the selected vendors regarding the prices and other terms and

conditions, to finalize the deal.

In case the orders are raised on a centrally approved vendor, verify the prices, terms

and conditions to place the orders.

Initiate the vendor verification process, in case the selected vendor is not enlisted in

Coke system.

Raise the purchase order based on the approved comparative quote analysis to be

approved vendor with Vendor Master Code.

Obtain approvals on the purchase order as per chart of authority.

Distributive copies of purchase order to Vendor/accounts/stores.

Track the order reference in purchase Log.

Follow up with the vendor for delivery as per as the schedule indicated.

Coordinate with stores and QA for receipt and approval of materials.

Track the GRN reference against respective purchase order/PR to arrive at the

pending PO status on monthly basis.

Coordinate with the Finance for payment, issue for C form, to the vendor.

Documents used in PO creation and authorization

1) Vendor Master Forms

2) Approved Vendor List

3) Purchase Requisition Form

4) Purchase Order form

a) Purchase order - Sales - POS

b) Purchase order - Raw Material - PORM

c) Purchase order - Capital Goods - POC

d) Purchase order - Other Inventory -POOI

| P a g e 29

5) Comparative Quotation Analysis Form

6) Purchase Order Amendment Form

7) Request for Advance Payment

Types of Purchase Orders:-

Vendor Approval

A vendor, before put into any transactional procedures with the organization, should be

approved by the company to ensure that proper verification is done to check and account the

Legitimacy of the Vendor.

This scope of the program covers Supply Chain department, and all the activities related to it.

The process internally stands on the combine responsibilities of the Supply Chain department

and the Finance department. The key roles could be defined as follows:-

Supply Chain Executive is responsible to compile relevant information confirming the

capability of the vendor, in terms of financial, Technical and Infrastructural aspects after

verification of the vendor and prepare the vendor master form(VMF)

Assistant Manager Finance is responsible to verify the legitimacy of the vendor based on

the VMF prepared by the Supply Chain department and to update the approved vendor in the

existing vendor master form.

Finance Manager is responsible to approve the VMF based on the verification done by the

Asst. Manager Finance and Supply Chain executive.

PROCEDURE:

| P a g e 30

This process involves compiling the detailed information of the vendor, documenting and

verifying the same to as, certain the Legitimacy and to update in the existing vendor master in

COLA

Purchase department will collect the information with regards the selected vendor.

Supply Chain executive will document the information on the vendor master input

form, and forward to Finance Executive.

Finance executive will verify the Legitimacy of the vendor, by speaking to

vendor/visiting vendor premises etc., and forward the same to Finance manager for

approval.

Finance Manager will approve the VMF based on the verification done by the Finance

Executive and Supply Chain executive and forward to the Asst. Manager Finance for

updating.

Finance Executive will enter the approval vendor in the Vendor Master List in COLA

and allot a unique vendor code to each Vendor and forward to Supply Chain

department.

Supply Chain Department will use the Vendor code to raise order against the

approved vendors.

Approved and up dated VMF are filed sequentially by the Supply Chain Executive for

record.

Vendor Master List is to be reviewed on yearly basis by Supply Chain Executive so

that the purging of in active Vendor can be done.

A supplier evaluation will be carried out on a yearly basis to track the performance of

the suppliers of important raw materials and the spare parts.

Waste Vendors: Waste vendor qualification shall be verified at least once in two years

and waste disposal processing sites shall be audited periodically at least once in two

years to verify and document site acceptability.

| P a g e 31

Preparation & Release of Purchase Order

The purpose of preparing and releasing a PO is to provide SOP for preparation and release of

Purchase Order.

The responsibilities for preparing and releasing Purchase Order are assigned across various

related departments, as follows:

Supply Chain Executive is responsible to raise the orders as per the prescribed procedure,

seek necessary approvals, and distribute PO copies to respective departments.

Head of The Departments are responsible for approving the PRs.

Departmental Associates are to raise SRN for Service activities against the service Pos.

Finance Manager is responsible to approve the purchase order raised by the Supply Chain

Department.

Procedure:

The process starts with the receipt of purchase requisition for various items.

In case of RM PM & auxiliary materials, the Stores department maintains the minimum stock

which is monitored on a daily basis.

In case of Raw Materials & packaging materials Purchase orders are directly raised and

released (Post Financial Approval) by the supply chain department based on the Inventory

| P a g e 32

cover and the production plan given by logistics. The responsibility lies with the Supply

Chain Executive/Manager.

For Auxiliary materials & consumables, the process starts with daily inventory tracking done

by the Store’s department. Based on the minimum inventory level (decided on forward cover

and actual past consumptions) the Store’s department will raise the purchase requisition, and

the same activity is followed for PR approval once the PRs are approved by HoD & Finance,

Purchase Orders are made by supply chain department.

The sequence of activities is as under in case of purchases made against purchase requisitions

for other category of purchases i.e. spares, others and services.

Purchase requisitions are raised for purchase of any material for the plant through

COLA software by the User department.

PRs will be approved by respective HoDs and will be forwarded to Finance for

approval.

Post HoD approval the same is to be approved by the Finance & tracked for the cost

centres/ budgetary availability.

Post Finance approval, PR is available for making new purchase order.

In case the orders are raised on centrally approved vendors, verify the approved

prices, terms and conditions to place the orders.

If the value amount exceeds Rs. 5000/- and less than Rs. 25000/- a minimum of two

written quotations are required.

If the value of the purchase exceeds Rs. 25000/- then a minimum of three quotations

are required.

If the number of quotations as per procedure is not obtained, then the reasons should

be written on Comparative Quotation Analysis Form and approval has to be taken

from Finance Manager.

Initiate negotiation with the selected vendors with regarding to prices and other terms

and conditions, to finalize the deal. All the quotations are reviewed by the functional

heads for their adequacy in terms of the technical requirements prior to finalizing the

deal.

Initiate the vendor verification process, in case the selected vendor is not established

in Coke system. This process comprises:

| P a g e 33

Obtain information to ascertain Technical, Financial capability and

Infrastructure facilities of the Vendor.

Obtain information regarding the sales tax & Excise tax registration of

the vendor.

Obtain details of past experience.

Verification of above details to ascertain the legitimacy of the vendor.

Documenting the above details on vendor master form.

Obtain necessary approvals of the vendor master form.

Updating of the approved vendor master form and enlist them in

approved vendor list of COLA.

Raise the purchase order against the approval comparative statement and approved

vendor master form. This Purchase Order comprises of material and product

specification and all other relevant requirements to be met.

Obtain approvals on Purchase Order as per the chart of authority.

Distribute the copies of Purchase Orders to finance/stores/vendor

Track the order reference in purchase log

Follow up with the vendor for delivery as per the schedule indicated.

Coordinate with stores and QA for receipt and approval of materials

Track the GRN reference against respective purchase order/PR to arrive at the open

order status at frequent intervals.

For service activities, once the part/full service is received at Unit end- the invoices

are to be collected by the respective department and the same to be entered (against

the PO no.) for SRN in COLA system.

Then only the services POs are processed for bill clearance through finance.

Supply chain Department team coordinate along with the Finance for payment, issue

for C form/ G form etc., where ever applicable to the vendor.

This SOP includes SIP for receipt of Purchase Requisition/ forecast. The documents will are

required for the completion of the process include Purchase Orders & Purchase Requisitions.

| P a g e 34

Purchase of Materials and Services

The purpose of purchase is to ensure that purchases are made from approved suppliers, as per

required specifications, at best possible prices, in line with company systems and procedures.

Scope: The area of operation is Purchase area and the persons responsible are Supply chain

executive and Supply chain officers.

The responsibilities of staff are as follows:

Sr. Supply Chain Executive is responsible to ensure that all the purchases are made in line

with the systems and procedures of the company, as per specified requirement, and at best

possible prices.

Department heads are responsible to ensure that all the purchase requisitions are to be

completed in all respects.

Stores In-Charge is responsible to receive materials against approved purchase order.

Finance Manager is responsible to provide feedback on Budget availability and PO approval

as per COLA.

QA manager is responsible to provide feedback on quality performance of vendors, at regular

intervals.

Service vendors: testing laboratory or Waste Disposal which are selected and monitored by

corporate or are bound by the Law.

| P a g e 35

The entire purchase of materials and services program can be described as a process which

involves receipt of Purchase requisitions/ forecasting, conversion of approved

requisition/plan to Purchase Order as per the procedures prescribed by FIT manual,

coordination with stores for receipt of material & QA for acceptance of material, coordination

with Finance department for clearance and vendor payments.

Also this includes the criteria for authorization (where ever the supplier is not authorized

centrally by the division)/ assessment/ termination/ verification/ re-authorization etc.

All division approved suppliers or Equipment OEM’s will be closely monitored by the user

department and in case of poor performance/dissatisfaction by the user, the feedback will be

provided to division/corporate for necessary actions.

This program involves the following documents:-

1. SOP on Preparation & Release of PO

2. SOP on Vendor Approval

3. WI on Purchase requisition

Possible Exceptions

For purchase from Local Suppliers on urgency basis, the following criteria are set for

acceptance:-

1. Incoming material Inspection

2. Availability of local suppliers

3. Timely supplies

This depends on the criticality of operation/ urgency of procurement & capability of the

suppliers. However all the suppliers need to go through the VENDOR MASTER enrolling

process and that contains all necessary verification as per HCCB Corporate protocol.

Outsourcing products from Co-packers/ COBO/ FOBOs

Products from the above will be procured based on the basis on the sales requirement as

defined by Division and region. No further verification is required for these vendors- but the

incoming quality issues will be formally communicated to the producing units- from QA

Manager.

| P a g e 36

Services

The provider will be considered as the vendor of the company. Prior to enlisting the vendor

TCCC/ Legal requirements will be assessed & updated as per the supply chain protocol,

while creating the Vendor Master List.

In terms of Environmental & Safety requirements of TCCC- the vendors will be

communicated in detail about our requirements so that they would comply with the same.

The Rate Contract Works

The Rate Contract Works will be verified (where ever applicable) for environmental & safety

related aspects/hazards through this program.

The contract work evaluation will be carried out through Job Work Evaluation- for the jobs

which need permits (hazardous works/ other permits) and will be reviewed in

Safety/environment committee meeting once in a quarter. The output will be communicated

to the supply chain for taking necessary actions.

Scrap/waste vendors

A long term/ imminent will be assesses through Waste Vendor assessment process which is

mandatory for all- once in 2 years site assessment & other legal verification for continuing

the activity once in a year. The output will be communicated to the supply chain for taking

necessary actions.

| P a g e 37

Vendor Evaluation

A Vendor Evaluation program is followed by HCCBPL in order to evaluate the performance

of long terms vendors, related to the purchase & disposal (other than the exceptions meeting

above) based on certain parameters on a yearly basis. The Vendor Evaluation will be

recorded in the Coke- internal used verification form (SU-171.1- FRM-122). Annexure 2

Performance Evaluation Criteria

Whenever the Environment & Safety assessments are necessary for the vendor/ service

provider

Overall Rating= Supply + Quality + Environment + Safety ratings

Acceptability score at minimum is 10 High efficiency & to continue.

But in any of the individual sections i.e. Supply, quality, environment or in safety if the score

is ZERO = then automatically the supply should be temporarily terminated, till the time the

issue is resolved, verified by both ends & compliance satisfaction is ensured.

The basic Environment & Safety requirements will be regularly (on day-to-day activity)

monitored by the Plant Security (in terms of the criteria mentioned below) and the same will

be assessed by the supply chain associates in order to determine the vendor’s/ supplier’s

performance.

| P a g e 38

Whenever the Supply & quality are necessary for the vendor/ service provider (example:

engineering spares suppliers etc)

Overall Rating= Supply + Quality ratings

Acceptability= 0.4+2 = 2.4 High efficiency & to continue

Also 2 points- supplier will be allowed to continue the supply.

However – for failure to meet any of the applicable Legal regulations – irrespective of the

score, the supplier /vendor will be withdrawn from supply chain with an immediate effect.

The same will be communicated to the supplier and will be rectified prior to acceptance of

the material. Else the same service/ supply consignment will be terminated.

Criteria Matrix

Su

pp

ly

Yes No

A Rejection 0 1

B No Of orders nos to be put in as per PO

C

No of supplies made in

time

nos to be put in as per actual

supplies

Rating A* (C/B)

Qu

alit

y

Good Poor

A Packing 1 0

B Specs 1 0

C Acceptance 1 0

Rating A + B + C

En

viro

nm

ent

Yes No

A

Legal compliance to

applicable laws 1 0

B

Any accident/ impact on

env. during the supply 0 1

C Any Spill / Solid

waste/Haz

Chemical/ODS/ACM/Haz

Waste generated ?

0 1

| P a g e 39

D Acceptability 1 0

Rating A x (B + C+ D)

Saf

ety

Yes No

A

Legal compliance to

applicable laws 1 0

B PPE used ? wherever reqd 1 0

C

Awareness of consignment

handlers on safety 1 0

D

Any accident/ impact on

safety of employees/

property during the supply 0 1

Rating A x (B + C+ D)

Higher the points, higher the supplier performance.

Suppliers with scores > 6.5 and service providers with scores > 9.0 will get continuity.

Suppliers with scores < 5.0 and service providers with scores < 7.5 will not be

considered for taking orders.

Suppliers with scores in between the above mentioned limits will be reconsidered for

further orders.

In case the supplier/ vendor perform poorly (below the criteria specified rating)/ fail to meet

any applicable regulatory requirements- the same detailed feedback will be given to them and

the service will be terminated.

Post rectification of the non-compliance, a complete evaluation will be done in consent with

the corresponding vendor, by the supply chain and respective user department. On complete

satisfaction of the closure of non-compliance only, they will be again re-authorized to resume

the supply/ service for the organization.

Training for Employee

A necessary on job training is given to the supply chain associated for preparing PO and

purchasing the materials. Similarly, there exists equivalent awareness training for all other

staff employees to understand the process of purchasing or demanding service for the

respective department.

| P a g e 40

Necessary Documentation used for the process includes:

1. Comparative Quotation Analysis form

2. Vendor Master form

3. Purchase Order

4. Approved Vendor List

5. Purchase Requisition

6. Supplier evaluation form

METHOD SUGGESTED FOR ENHANCING THE TIME AND SCOPE

OF PR to PO PROCESS

Description:-

The entire PR to PO process as described above, is evaluated using a Java program and the

system was so developed that each step or the stage is assigned a maximum limit of days to

complete the work and when done, the contract is transferred to the next stage.

Depending upon the time taken to complete the work in a particular stage, the stage is catered

into either a ‘RED’ or ‘GREEN’ queue. i.e. ‘RED’ if the work is not done in the specified

time and ‘GREEN’ if the work is done in time.

The following assumptions are taken:-

SL. No. Stage Minimum days taken

1 Creation Day to HoD Approval 2

2 HoD Approval to Financial Approval 3

3 Financial Approval to PO date 3

4 PO date to PO Approval date 2

| P a g e 41

Each stage is subject to be rejection, if the required criteria are not fulfilled, then a rejection

date is assigned on the day rejected.

In case the date of approval or rejection is not specified at any stage then, the program take

the stage is under process and calculates the time period taking the current date into action.

(Annexure 2- Chapter 6)

Output 1 – Completion of PR to PO process

| P a g e 42

The output above illustrates that there has been a successful execution of the PR to PO

process. However the process was completed under the RED queue. The data also illustrates

that each stage has an associated number of days of completion along with the queue taken.

Output 2 – Rejection of PR before completion to PO

| P a g e 43

The output above illustrates that the PR was rejected before forming PO by the Supply Chain

department. The data also illustrates that each stage has an associated number of days of

completion along with the queue taken.

Output 3 – PR waiting for approval

| P a g e 44

The output suggests us that PR has not yet been converted to a PO and is under waiting to

receive a PO status from the Supply Chain department. The respective queues is assigned as

per the days taken at each stage.

FINANCIAL SUPPLY CHAIN MANAGEMENT

| P a g e 45

Financial Supply Chain Management system is an integral component of supply chain,

connecting trading partners (vendors and the organization) from order placement to receipt of

payment. It carries the flow of financial information and money in the direction opposite to

the flow of goods and services. This has shown a sharp shift from the theoretical discussions

to the tangible practical benefits derived from the programme.

The physical supply chain can be defined as the activities involved in planning and executing

the movement of goods and their documentation, while the financial supply chain describes

the activities involved in planning and executing payments between trading partners - what

could be described as the order-to-cash and the purchase-to-pay cycles for suppliers and

buyers respectively. For every physical movement of goods between supplier and buyer,

there exists a financial flow travelling in the opposite direction. Financial supply chain

management involves taking a holistic approach to these processes in order to achieve a range

of benefits that include improved efficiency and visibility across the supply chain and a more

favourable working capital position.

From the buyer's perspective, offering financing in this way represents an opportunity to

more effectively manage relationships with suppliers and increase payment terms without

damaging goodwill between trading parties. And from the perspective of the supplier, the

main benefits relate to improved cash flow as reduced days sales outstanding (DSO)

mitigates the need for working capital during the production process.

PAYABLES MANAGEMENT

| P a g e 46

http://www.businessdictionary.com/definition/payment.html

http://www.businessdictionary.com/definition/services.html

http://www.businessdictionary.com/definition/goods.html

http://www.businessdictionary.com/definition/money.html

http://www.businessdictionary.com/definition/information.html

http://www.investorwords.com/5572/financial.html

http://www.businessdictionary.com/definition/flow.html

Better Inventory Management

The efficiency and effectiveness of the inventory basically depends of four major factors

listed as above i.e. Quantity (number of items ordered), Time (Months of stocking), Value per

unit (cost price per unit) and Cost of capital, now representing each attribute with individual

variables as x, y, z and r respectively, we can analyze that the cost of capital (r) is

independent variable and is always uncontrollable by the organization. Hence, when applied a

minimization function for the remaining attributes, we can enlist

x * y * z = Minimum

Example:-

x: Number of axles of truck=5

y: Number of months of stocking the axles in inventory=3

z: Cost per unit= 5000

r: cost of capital= 12% p.a.

(Assumed as per the PR-PO dump- Annexure 3-softcopy)

| P a g e 47

Applying the Simple Interest method, we could have,

[(x*y)*z*r]/100

= 750

The 750 produced is the inventory carrying cost (ICC)

To decrease the Inventory carrying cost, we can work on the following parameters:-

1. Targeting the Cost Price (z) of the item purchased:-

Concentrating on Cost Price of the item, we can determine it as a Procurement process, which

could be done either electing a fixed approved vendor from the Vendor Master List; or by

inviting tenders and electing the best out of them in terms of time and cost.

2. Targeting Time (y) as the attribute for stocking material:-

If the target variable is the number of months of holding the item (stocking) then it could be

determined by Operations Management via Demand Forecasting. Using an appropriate form

of forecast and adhering to it would help us reducing the ‘y’ factor i.e. we could order the

items as required for our immediate consumption and hence the storing cost in inventory

would reduce to a large extent.

3. Targeting the Quantity (x) as the number of items purchased:-

| P a g e 48

When the Quantity of purchased items is taken into consideration, then it again comes under

the operations management, however, this time the area of concern is drawn into technology,

process and maintenance. The technology is the measure of quantum of work that could be

completed with the use of machinery; it thus defines the capacity of the machine under use

and the skills of worker deploying it. Secondly, the process speaks about the efficiency of the

work; it exhibits the time and cost measures to have a reasonable output. Finally, it is the

maintenance that determines the condition of the work; the better the machines are

maintained, the less are the overhead cost and more is the efficiency.

NEGATIVE PAYABLE MANAGEMENT AT HCCBPL

| P a g e 49

Delaying a payment of Rs. 75000 (as per the example taken above) by ‘N’ days, so that a

gain of 750 is attained (as per the calculations attained above), derives the following impact:-

Impact of Delay:-

1. Bad will for the company.

2. Bad word of mouth.

3. Delayed Suppliers.

4. Less quality in the supplied materials.

5. Losing quality suppliers i.e. stoppage of suppliers.

6. Items get charged at a higher price than usually quoted.

Rationale for Change:-

The above implications are costly raising the cost per unit for an item and hence to save 750

on delaying the payment of 75000, there could be increase of payment, in form of increased

Cost Price to 80000 or above i.e. spending an amount of 5000 extra to the cost save of 750.

This price jack up is medium term by the suppliers and it can have worse effects in the long

run too.

POSSIBLE CHANGES THAT COULD TRIGGER BENEFITS

Alternative approach with Internal Management and efficiency building measures could be attained

by controlling the following factors:-

Attributes Effect Factors Control

Quantity (x) Decrease Internal Efficiency

Time (y) Decrease Internal Demand Forecasting

Value/ Cost (z) Decrease External Negotiation

Cost of Capital (r %) Decrease A/Cs CoC-External -Bank Finance

-Bill Discount

Impact of the above Practices:-

| P a g e 50

1. Low Cost Finance- Decreasing the Cost of Capital

2. Better Supplier Relationship

3. Cost Reduction

Benefits to Suppliers

1. Effective Management of the cash conversion cycle by managing the Days Sales

Outstanding

2. Unlock the working capital

3. End to End Receivables Collection Management

4. Enhanced cash flow forecasting

5. Straight Through processing of Receivables

6. Enhancing the relationship value with Dealers

Benefits to Dealers

1. Easy accessibility to low cost working capital

2. Dynamic Discounts/Rebates on early payments

3. Effective management of Days Payable outstanding

4. Enhanced cash flow forecasting

5. Straight Through Processing of Payables

6. Enhancing the relationship value with Suppliers

Benefits to Banks

1. Greater Fee based income

2. More Fund based income

3. Cross Selling Opportunities

4. Partner with the customer in unlocking the working capital

5. Enhancing the relationship value with suppliers & dealers

Chapter | P a g e 51

5

Suggestions

AndRecommendations

SUGGESTIONS AND RECOMMENDATIONS

Making a Financial- Supply Chain Connection

| P a g e 52

Figure: Top-down approach to making Financial- Supply Chain Connection

A three stage approach involving the supply chain department and finance department

could be used to integrate the procurement, distribution and payable processes. The

same was also implemented with P&G, Wal-mart, Sara-Lee and Nabisco and notable

returns were achieved.

The three stages are as follows:-

1. Calculate the Value of Gaps in Key Financial Metrics.

2. Link Gaps in Financial Metrics to SCM Business Processes and Strategies.

3. Map SCM Initiatives to Financial Performance Gaps

Implementation of VEDP Approach

The VED- Vital, Essential & Desirable approach is well known to link up inventory

with Procurement. Depending on the movement of goods and there importance in the

market, the items are enlisted in the category and so is the availability maintained in

the warehouse. In case of HCCBPL, Visakhapatnam, along with using VED an extra

‘P’ is kept in use for addressing the Project based needs. i.e. all needs and wants

which could be taken as projects like a event organization or a CSR, and a separate

mode of payable system and execution management can be used.

| P a g e 53

Using ABC Analysis

An ABC Analysis in the suggested VEDP format is recommended to be maintained. It

is the process to classify materials into three categories A, B, C. It is observed in

manufacturing plants that 80% of the material is used more and costs less while 20%

of the material costs very large and are used occasionally. Therefore in order to

manage inventory effectively this classification is done.

Contractual Incentives

Contractual Incentives are to be encouraged to the retailers and the Suppliers, which

would in turn end up in better forecasting and enhance in minimizing stock-outs in

market.

Two types of Contractual Incentives can be encouraged:-

1. Capacity Reservation Contract.

2. Advance Purchase Contract.

Identify the trend in nature wise expenses

Identify the trend in nature wise expenses, which would help in analyzing the items

which are more frequently ordered from the vendors and hence the durability and

service levels of the item can be identified.

Collaborative approach in Decision Making

1. Team meets with SC department, Finance, Production and Stores to track up

the Supplier Psychology, i.e. identifying the trend in orders, seasonality etc.

2. Vendor Selection should be a group activity, rather than comments from SC

alone.

3. Selecting Supplier from the number of Services extended to the company in a

calendar year.

| P a g e 54

Chapter

6

ANNEXURES

(1)Annexure 1- Inventory- stock availability calculations with lead time

(Softcopy)

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(2)Annexure-2

PROGRAM FOR EVALUATING THE PR to PO PROCESS

import java.util.*;

import java.io.*;

public class Dates

{

int a,b,c,days1=0,days2=0,days3=0,days4=0,total=0;

int f1=0,f2=0,f3=0,f4=0;

int r1=0,r2=0,r3=0,r4=0,s=0;

Calendar cal = new GregorianCalendar();

Calendar ccal = new GregorianCalendar();

Calendar hodacal = new GregorianCalendar();

Calendar facal = new GregorianCalendar();

Calendar pocal = new GregorianCalendar();

Calendar poacal = new GregorianCalendar();

Calendar rhodacal = new GregorianCalendar();

Calendar rfacal = new GregorianCalendar();

Calendar rpocal = new GregorianCalendar();

Calendar rpoacal = new GregorianCalendar();

BufferedReader brc=new BufferedReader(new InputStreamReader(System.in));

public static void main(String args[])throws IOException

{

Dates difference = new Dates();

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}

Dates()

{

a=cal.get(Calendar.YEAR);

b=cal.get(Calendar.MONTH);

b=b+1;

c=cal.get(Calendar.DATE);

cal.set(a,b,c);

System.out.println("Enter creation date:");

cdate();

ccal.set(a,b,c);

System.out.println("Enter HOD App date:");

hodadate();

hodacal.set(a,b,c);

if(f1==1&&r1==0)

{

System.out.println("Enter Finance App date:");

fadate();

facal.set(a,b,c);

if(f2==1&&r2==0)

{

System.out.println("Enter PO date:");

podate();

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pocal.set(a,b,c);

if(f3==1&&r3==0)

{

System.out.println("Enter PO App date:");

poadate();

poacal.set(a,b,c);

}

}

}

call();

}

public void call()

{

if(f1==1)

{

days1=daysBetween(ccal.getTime(),hodacal.getTime());

System.out.println("Days= "+days1);

if(days1<3)

System.out.println("creation-hoda :green");

else

System.out.println("creation-hoda :red");

if(f2==1)

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{

days2=daysBetween(hodacal.getTime(),facal.getTime());


if(days2<4)

System.out.println("hoda-facal:green");

else

System.out.println("hoda-facal:red");

if(f3==1)

{

days3=daysBetween(facal.getTime(),pocal.getTime());


if(days3<4)

System.out.println("facal-pocal:green");

else

System.out.println("facal-pocal:red");

if(f4==1)

{

days4=daysBetween(pocal.getTime(),poacal.getTime());


if(days4<3)

System.out.println("pocal-poacal:green");

else

System.out.println("pocal-poacal:red");

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}

else

{

if(r4==1)

{

days4=daysBetween(pocal.getTime(),rpoacal.getTime());

System.out.println("Rejected at po app");

System.out.println("rejection days:"+days4);

}

else

{

days4=daysBetween(pocal.getTime(),cal.getTime());

System.out.println("Not yet approved at po app");

System.out.println("Waiting for approval since"+days4);

}

}

}

else

{

if(r3==1)

{

days3=daysBetween(facal.getTime(),rpocal.getTime());

System.out.println("Rejected at po ");

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}

else

{

days3=daysBetween(facal.getTime(),cal.getTime());

System.out.println("Not yet approved at po");


}

}

}

else

{

if(r2==1)

{

days2=daysBetween(hodacal.getTime(),rfacal.getTime());

System.out.println("Rejected at fa");


}

else

{

days2=daysBetween(hodacal.getTime(),cal.getTime());

System.out.println("Not yet approved at fa");


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}

}

}

else

{

if(r1==1)

{

days1=daysBetween(ccal.getTime(),rhodacal.getTime());

System.out.println("Rejected at hoda");


}

else

{

days1=daysBetween(ccal.getTime(),cal.getTime());

System.out.println("Not yet approved at hoda");


}

}

total=days1+days2+days3+days4;

System.out.println("Total days= "+total);

if(total<11)

System.out.println("total:GREEN");

else

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System.out.println("total:RED");

}

//creation date

public void cdate()

{

try

{

System.out.println("Enter year:");

a=Integer.parseInt(brc.readLine());

System.out.println("Enter mon:");

b=Integer.parseInt(brc.readLine());

System.out.println("Enter date:");

c=Integer.parseInt(brc.readLine());

}

catch(Exception ex)

{

}

}

//hod app date

public void hodadate()

{

try

{

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if(a==0)

{

System.out.println("Want to Enter reject date:");

s=Integer.parseInt(brc.readLine());

if(s==1)

{

r1=1;

System.out.println("Enter HOD reject date:");

Rejectdate();

rhodacal.set(a,b,c);

}

else

{



b=b+1;


}

}

else

{

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f1=1;





}

}

catch(Exception ex)

{

}

}

//financial date

public void fadate()

{

try

{



if(a==0)

{



if(s==1)

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{

r2=1;

System.out.println("Enter financial reject date:");

Rejectdate();

rfacal.set(a,b,c);

}

else

{



b=b+1;


}

}

else

{

f2=1;





}

}

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catch(Exception ex)

{

}

}

//po date

public void podate()

{

try

{



if(a==0)

{



if(s==1)

{

r3=1;

System.out.println("Enter po reject date:");

Rejectdate();

rpocal.set(a,b,c);

}

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else

{



b=b+1;


}

}

else

{

f3=1;





}

}

catch(Exception ex)

{

}

}

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//po app date

public void poadate()

{

try

{



if(a==0)

{



if(s==1)

{

r4=1;

System.out.println("Enter po app reject date:");

Rejectdate();

rpoacal.set(a,b,c);

}

else

{



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b=b+1;


}

}

else

{

f4=1;





}

}

catch(Exception ex)

{

}

}

public void Rejectdate()

{

try

{

BufferedReader brc=new BufferedReader(new InputStreamReader(System.in));


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}

catch(Exception ex)

{

}

}

public int daysBetween(Date d1, Date d2)

{

return (int)( (d2.getTime() - d1.getTime()) / (1000 * 60 * 60 * 24));

}

(3)Annexure-3- PR-PO dump

(Softcopy)

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Chapter

7

References

REFERENCES

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1. INDIA RESOURCE CENTER

http://www.indiaresource.org/

2. COCA-COLA INDIA- Indian Supplier and Manufacturer from India

http://suppliers.jintrade.com/

3. COCA-COLA INDIAhttp://www.coca-colaindia.com/

4. http://www.beverage-digest.com/

5. “Designing and Managing the Supply Chain” By David Simchi-Levi

6. “Procurement and relationship management trends in FM services”

By Tero J.T. Lehtonen & Anssi I. Salonen

http://docs.google.com/

7. “The Supply Chain Approach to Planning and Procurement Management”

By Gregory A. Kruger


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http://www.beverage-digest.com/

http://www.coca-colaindia.com/

http://suppliers.jintrade.com/

http://www.indiaresource.org/