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.

|Page 1
 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

|Page 2
 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

|Page 3
 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

|Page 4
 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

|Page 5
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.

|Page 6
 Chapter
1

Introduction

|Page 7
 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.

|Page 8
 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

|Page 9
 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

| P a g e 11
 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
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

| P a g e 12
 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
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:

| P a g e 13
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

Chapter
2
| P a g e 14
 Review Of
Literature

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

| P a g e 15
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
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

| P a g e 16
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.

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

| P a g e 17
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.

Chapter
3
| P a g e 18
 Industry
and
Company Profile

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

| P a g e 19
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
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.

| P a g e 20
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.

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.

| P a g e 21
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.
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.

| P a g e 22
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
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

| P a g e 23
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.

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.

| P a g e 24
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.

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

| P a g e 25
 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.

Customer
Suppliers
s

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.

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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.

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

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 Data Analysis

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
| P a g e 28
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.

• 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.

| P a g e 29
 • 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

5) Comparative Quotation Analysis Form

6) Purchase Order Amendment Form

7) Request for Advance Payment

Types of Purchase Orders:-

Vendor Approval

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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:

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.

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• 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.

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 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 33
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

| P a g e 34
 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:

 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.

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 • 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.

Purchase of Materials and Services

| P a g e 36
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.

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:-

| P a g e 37
 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.

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.

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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 39
 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.

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.

| P a g e 40
Criteria Matrix

Yes No
A Rejection 0 1
Supply

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)

Good Poor
A Packing 1 0
Quality

B Specs 1 0
C Acceptance 1 0
Rating A+B+C

Yes No
Legal compliance to
A applicable laws 1 0
Any accident/ impact on
Environment

B env. during the supply 0 1

Any Spill / Solid waste/Haz
Chemical/ODS/ACM/Haz
C Waste generated ? 0 1
D Acceptability 1 0
Rating A x (B + C+ D)

Yes No
Legal compliance to
Safety

A applicable laws 1 0
B PPE used ? wherever reqd 1 0
Awareness of consignment
C handlers on safety 1 0
Any accident/ impact on
safety of employees/
D 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.

| P a g e 41
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.

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
| P a g e 42
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

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

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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

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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 45
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

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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

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 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)

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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:-

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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

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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:-

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 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

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 Chapter
5

Suggestions
And
Recommendations

| P a g e 53
 SUGGESTIONS AND RECOMMENDATIONS

• Making a Financial- Supply Chain Connection

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

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 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.

• 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.

| P a g e 55
• 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.

Chapter
6

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

(Softcopy)

(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();

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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();

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();

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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();

pocal.set(a,b,c);

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

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

poadate();

poacal.set(a,b,c);

call();

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}

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)

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

System.out.println("Days= "+days2);

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());

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 System.out.println("Days= "+days3);

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());

System.out.println("Days= "+days4);

if(days4<3)

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

else

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

else

if(r4==1)

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

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

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

else

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 {

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 ");

System.out.println("rejection days:"+days3);

else

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

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

System.out.println("Waiting for approval since"+days3);

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 else

if(r2==1)

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

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

System.out.println("rejection days:"+days2);

else

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

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

System.out.println("Waiting for approval since"+days2);

else

if(r1==1)

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

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

System.out.println("rejection days:"+days1);

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 }

else

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

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

System.out.println("Waiting for approval since"+days1);

total=days1+days2+days3+days4;

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

if(total<11)

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

else

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:");

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 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

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

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

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:");

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 Rejectdate();

rhodacal.set(a,b,c);

else

a=cal.get(Calendar.YEAR);

b=cal.get(Calendar.MONTH);

b=b+1;

c=cal.get(Calendar.DATE);

else

f1=1;

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

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

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

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

catch(Exception ex)

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 }

//financial date

public void fadate()

try

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

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

if(a==0)

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

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

if(s==1)

r2=1;

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

Rejectdate();

rfacal.set(a,b,c);

else

a=cal.get(Calendar.YEAR);

b=cal.get(Calendar.MONTH);

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 b=b+1;

c=cal.get(Calendar.DATE);

else

f2=1;

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

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

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

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

catch(Exception ex)

//po date

public void podate()

try

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

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

if(a==0)

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

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

if(s==1)

r3=1;

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

Rejectdate();

rpocal.set(a,b,c);

else

a=cal.get(Calendar.YEAR);

b=cal.get(Calendar.MONTH);

b=b+1;

c=cal.get(Calendar.DATE);

else

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 f3=1;

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

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

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

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

catch(Exception ex)

//po app date

public void poadate()

try

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

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

if(a==0)

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

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

if(s==1)

r4=1;

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

Rejectdate();

rpoacal.set(a,b,c);

else

a=cal.get(Calendar.YEAR);

b=cal.get(Calendar.MONTH);

b=b+1;

c=cal.get(Calendar.DATE);

else

f4=1;

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

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

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

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

catch(Exception ex)

public void Rejectdate()

try

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

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)

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 public int daysBetween(Date d1, Date d2)

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

(3) Annexure-3- PR-PO dump

(Softcopy)

Chapter
7

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 References

REFERENCES

1. INDIA RESOURCE CENTER

http://www.indiaresource.org/

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

http://suppliers.jintrade.com/

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 3. COCA-COLA INDIA
http://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

http://docs.google.com/

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