Rem Chemicals (RC) is a large manufacturing organization having 5 large-and 12 smaller-capacity plants in various locations. They are the leading market players and manufacturers of polyester, petrochemicals and polymer products in the country.
The regular store requirements like gaskets, valves, welding electrodes, fasteners, pipes and pipe fittings, and electrical and instrumentation consumables, were procured directly from various stores across the sites by raising POs after calling quotations from ‘registered’ regular suppliers and placing orders as and when required. The management observed that this procurement process caused inconsistency and variability in purchase pricing, resulting in overall higher procurement costs. They also observed the variations in product quality at different points and times of purchases. The management decided to review the prevailing procurement process and initiated the following actions:
After studying these factors, the management reduced the suppliers’ base of the company by 45 per cent. RC established the ARCs with the suppliers which reduced considerably the inconsistencies over the price of the consumables in all the plants. As the orders increased, a strong business relationship was developed with the suppliers. Buying in bulk reduced the costs. By avoiding repeat buying through tendering at various locations, lead time between PR and PO was reduced by 63 per cent. These benefits accrued; a few mechanical items listed in Table 1 is illustrative of the new procurement system. Similarly, Table 2 is illustrative of reduction in lead time after the implementation of ARC. The savings achieved after implementation of the new procurement system is listed in Table 3.
Table 3 New Procurement System: Savings
Items | Savings (Rs in Lakhs) |
---|---|
Valves, pipes, steam straps and seals | 115 |
Mechanical consumables | 227 |
Electrical items | 68 |
Mechanical spares | 90 |
Instrumentation consumables | 226 |
Fire and safety | 32 |
Bearings | 112 |
Gases | 15 |
Total | 885 |
A major reason for lead-time reduction was reduction in tendering time. As the vendors were aware in advance of the possible orders, they were prepared for supply. Due to the implementation of the ARC system, the suppliers directly got the electronic copy of PO from the company leading to reduction in time as well as transaction costs.
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