Standard Operating Procedure

Disposal of Scrap
Purpose:
The purpose of this SOP is to provide guidelines for disposal of scrap and ensure
timely and safe disposal with minimum risks to employees, public and health and
environment.

Introduction:
Scrap items are parts with no useable life and includes all recyclable products.
For every part that goes out from Modaraba premises a Gate pass is issued. Its
clearly mentioned on Gate Pass whether its returnable or not. Consumable parts
are classified as non returnable. Further more if the item is a CAT part a MIN is
also made for it. While for Local purchased parts only gate pass is issued.
CAT parts are capitalized, where local parts are expense out.

Scrap Items:
Main Scrap items are:

Oil (CAT + Local)=based on number of liters

Batteries =based on battery size
Tyres =based on size and type of tyre
Other Parts (CAT + Local) = these are disposed based on weight as one
lot.

Major revenue is earned through the disposal of Oil, Batteries and Tyres.

Collection of Scrap Parts:

Scrap is generated through obsolesce of parts which are originally issued because
of two reasons:

For Schedule Maintenance

For Trouble Shooting

Schedule maintenance is conducted according to the guidelines provided by

Caterpillar.
Troubleshooting is held in case of problems in gensets.

Documentation:
In case used parts are returned to the store, return inward note shall be prepared
by the store in-charge on receiving the goods. Operation team returning the
inventory is also required to sign on the return inward note.
Return inward note shall be prepared by store incharge.

Oil Consumption ratio:

Oil recovery ratio shall be as follows:

Gas engines oil: Recovery of used oil is 30% to 35 % of total oil issued.
Consumption / wastage of NGEO is 65% to 70% of total oil issued.
D.E.O: Recovery is 80% of oil issued. Consumption / wastage is 20% of oil
issued.

The Capacity of the tanker in which oil is collected when received from the sites is
21,000 liters in Lahore and 10,000 liters in Islamabad. Oil shall be disposed of
when the tank is 90% filled.
No tank is available in Karachi and thus oil shall be disposed of when more than 8
drums are available to be disposed of.

Consumable & Remains Parts:

Consumable parts are consumable in nature and are not returned back.
(Like seal-o-ring & gaskets etc).
Remains parts are those parts which are returnable but are not scraped to
outsiders, these parts are traded of for new parts from AESL of the same
nature, because CAT gives us special concession on new parts on return
the old faulty parts.
Part number of remain parts are such that these are separately
identifiable.

Scrap committee:
A scrap committee has been formed comprising of members from audit
department, admin manager and a representative of finance department.
-------------------------------------------------------------------------------------------------------------------------------------Key areas covered under this SOP are:

Recording

Storing
Disposal

Accounting treatment

Recording:
Recording of scrap is essential; store incharge of all the regions must maintain a
register which shall contain relevant details. The register shall be maintained on
day to day basis by the store incharge.

On monthly basis MIN ledger should be reconciled with inward gate pass.
Inventory officer and Store in-charge should coordinate and follow up the
missing parts on monthly basis, if any.

Site incharge shall check the quantity of the oil which is being returned to
the head office.
Further the store incharge shall verify the quantity being returned before
issuing the part inward note.

Storing:
The procedures to be followed in this respect shall be as follows:

The scrap material shall be kept in the scrap area which shall be kept
under lock and key. The key shall be kept with the store incharge and the
finance representative.

Used items after inspection from store incharge are dumped into a specific
area allotted for the purpose of scrap parts which shall be kept lock.

A new part shall only be issued once the old part is received for cases of
replacement of parts.(reverse is happening)48 hrs

Oil shall be stored in the oil tanker.

Material shall properly stored and clearly identifiable at the time of audit
and auction.
Parts shall be kept in the container until disposed of. Used parts should be
properly tagged (part name, number and rental number) on the spot or
when they are collected in store, so that they can easily be identified.
Parts shall be deposited in the scrap area with a tag which shall contain
the job number.

In respect of batteries it shall be ensured that acid in the batteries is

emptied.

Scrap item should be inspected by relevant person before being scraped.

(Because if any part is repairable so we can save extra cost).
Optimizing the use of scrap storage area by implementing proper
strategies of handling used items. Proper placement of scrap items when
they are received in the store will provide more space for the scrap
storage.
When Oil return back from sites the store department should check the oil
quality (i.e. whether water does not mix up with oil) before the issuance of
GRN.
Consumable and returnable (Remain Parts) parts should be kept separated
so that during the audit, returnable parts shall be easily identified.(no
remain)
Audit department is required to inspect such items before they are
scrapped. Audit department physically counts the items. And then
generate a list of these physical present items for auction.

Disposal of Scrap:
The procedures to be followed in this respect shall be as follows:

Engineer should estimate the value it will fetch in the open market price.
This value shall be considered by the scrap committee to set the
benchmark bid price. . A benchmark is decided by the scrap committee
below which the items shall not be scrapped.

Admin shall publish a detail advertisement in the local daily newspaper

and call for closed tender from the prospective buyer, in other way they
may send enquiry letters calling for quotations from the identified buyer in
such case three quotations shall be collected. The bids are required to be
addressed to the admin department. Region shall decide the option based
on the value of scrap, the cost of advertisement etc.

The items are required to be shown to bidders by the Admin department.

The frequency of disposal shall difer from region to region based on the
volume handled; however scrap must be disposed of at least twice a year
in every region.

The tender shall be opened in the presence of scrap committee. Finance

representative in the scrap committee shall ensure that the sealed tenders
are kept under safe custody.

Security deposit amounting to Rs 20,000 shall be taken from the bidders

Based on the tenders received highest bidder is selected and awarded the
scrap.

Comparative statement of rate shall be prepared based on the tender by

quotations collected and the decision of selecting the party shall be
mentioned therein. the statement shall be signed by all the members of
the scrap committee and shall then be forwarded to the regional head.

Scrap disposal shall be on cash and carry basis or the amount shall be
deposited in the bank and scrap shall then be collected within 48 hours of
the clearance of the bank deposited.

Sales tax on scrap shall be collected according to the registration status of

the scrap dealer.

In case the successful bidder refuses to take the scrap the second highest
bidder shall be awarded the scrap provided that he is willing to pay the
amount bid by the highest bidder, if not a reauction shall take place.

Accounting Treatment:

Scrap disposal shall be on cash and carry basis or the amount shall be
deposited in the bank and scrap shall then be collected within 48 hours of
the clearance of the bank deposited.

Under no circumstances manual billing shall be allowed for such sale.