A

Project Study Report

On

INVENTORY MANAGEMENT SYSTEM

Undertaken at

HINDUSTAN ZINC LIMITED (HZL)

ZINC SMELTER
DEBARI, UDAIPUR-313024

“VENDER MANAGEMENT”

Submitted in partial fulfillment for the

Award of degree of

Master of Business Administration

Submitted By: Submitted To:

Ms. Shraddha Pancholi Ms. Payal Sachdev
MBA Part III Lecturer
2007-2009

ADVENT INSTITUTE OF MANAGEMENT STUDIES

 (Affiliated to Rajasthan Technical University, Kota)

PREFACE

Zinc and Lead the 23 and 24 most abundant elements in earth crust are among Fourth and
fifth most widely consumed industrial metals. Today after iron, aluminum, copper, sulphate
and galena sources of most of world’s supplies of these metals generally co-occur in
association with minerals of sodium, silver and copper.

Zinc and lead are resources known to be hosted by at least six geological
environment but most major deposits occur strata bound as massive, mixed sulphide ores
in metamorphic rocks and irregular breccia or replacement in carbonate rocks. The primary
producers of zinc ore are Canada and Ex-USSR.

India has the pride of having the oldest known deposits of Zinc ore at Zawar
mines. Zinc metals also used to be extracted through crude pyro- metallurgical process in
ancient times. Recognizing this Zinc extraction district as the oldest in World American
Society of Metals declared it as an INTERNATIONAL HISTORICAL LANDMARK by
placing a plague at Zawar in Rajasthan state on second February 1989.

The industrial upswing that took place in the country during the 60’s assured in a
new era for Zinc metal extraction from ores. It was during this decade that the governments
of India realizes that strategic importance of Zinc and Lead metals and incorporated HZL.
The company has over the years shriven hard to bridge gap between indigenous Zinc
production and the national demand.

Relationship of man with metal dates back to the evolution of man himself common
man generally associated for the world metal only to such material that are made up of
gold, silver, platinum or copper and is unaware the most articles that he is using in day to
day life have a direct or indirect association with the metal Zinc.

Predominantly zinc metal is known due to its unique property of corrosion,

resistance which lends its use for galvanizing. Today there is hardly any industrial sector or
common product that has escaped the influence of Zinc in some form. Zinc is one of
essential non-ferrous metal required in industrial economy and is fourth in order of
consumption amongst the major metals after iron, aluminum and copper.

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 ACKNOWLEDGEMENT

I express my sincere thanks to my project guide Miss. Payal Sachdev

Designation faculty, for guiding right from inception till the successful completion of the
project. I sincerely acknowledge him for extending their valuable guidance, support for
literature critical reviews of project and the report and above all the morale support he had
provided to me will all stages of that project.

I extend my sincere thanks to Director Prof.N.S Rao, and I would also like to thank
the supporting staff of Advent Institute of Management Studies, for their help and co-
operation throughout my project.

Thanks to all who directly or indirectly helped me during the term of project.

Shraddha Pancholi

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 DECLARATION

I do, hereby, declare that the dissertation entitled “VENDER MANAGEMENT” is an

authentic work developed by me at HZL, Debari, under the guidance of Mr.N.K Agrawal,
(Finance) submitted in partial fulfillment of the requirements for the award of the degree of
Master Of Business Administration (MBA) of ADVENT INSTITUTE OF MANAGEMENT
STUDIES.
.

I also declare that, any or all contents incorporated in this dissertation have not been
submitted in any form for the award of any degree or diploma of any other institution or
university.

SHRADDHA PANCHOLI
M.B.A.

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 EXECUTIVE SUMMARY

Hindustan Zinc Limited (HZL), one of the leading Zinc-Lead producers in India, was
established as a public sector undertaking on 10 January 1966. Latter in the year 2001 it
was acquired by the Sterlite Industries, a subsidiary of Vedanta Group of Companies. This
transformation of HZL led to substantial synergies for the concerned company’s production,
distribution and sales.

Following report intends to brief you about HZL’s area of operations. Basically, HZL
is engaged in the production of Zinc, as it caters to almost 90% of Zinc demand of our
country. It uses processes like roasting, leaching, purification and electrolysis in order to
gets its final output that is Zinc slabs. Cadmium and Sulphuric Acid are its by-products
which also fetches considerable worth. We will also look through different operating
departments of HZL. Every department of HZL namely; safety department, human resource
department, production department, sales department and finance department are equally
significant.

This report particularly focuses on the financial performance of HZL. This

evaluation is basically done by adapting three techniques; variance analysis, ratio analysis
and working capital management

Through variance analysis we got to know the difference in company’s actual and
budgeted estimates and what were the reasons behind the respective difference. Variance
analysis aids in planning future goals, controlling costs, evaluating performance, and taking
corrective action.

In ratio analysis we interpreted HZL’s financial statements and got to know

company’s current and long term financial soundness. This analysis was done as per set
standards related to these ratios. This also helped us to ascertain HZL’s profitability.
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Together with this future trend estimation related to these ratios was also done by using
statistical tool. We compared the ratios of HZL year wise.

Working capital is a valuation metric that is calculated as current assets minus

current liabilities. It is a measure of both a company's efficiency and its short-term financial
health. The aim of working capital management is to ensure that the firm is able to continue
its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and
upcoming operational expenses. Equally important is that working capital needs vary from
industry to industry, especially considering industries’ dependence on expensive
equipments and other industry-specific matters.

This report will also acknowledge its readers with Six Sigma culture and a thrust on
Quality Circle programmers’. Both these techniques are rigorously being used in HZL. This
has resulted in increased productivity and efficiency.

The report will finally help us to know that how HZL is consistent with its growth
prospects and is able to deliver an impressive performance.

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S.No. Topic Page No.
Chapter-1 Introduction to the Industry 8-10

Chapter-2 Introduction to the Organization 11-48

Chapter-3 Research Methodology 49-51

• Title of the study
• Duration of the period
• Objective of Study
• Type of the research
• Sample size & method of
selecting sample
• Scope of study
• Limitation of study

Chapter-4 Fact & Findings 52-59

Chapter-5 Analysis and Interpretation 60-64

Chapter-6 SWOT 65-66

Chapter-7 Conclusion 67

Chapter-8 Suggestions and Limitations 68-69

Chapter-9 Appendix 70-71

Chapter-10 Bibliography 72

Table of Contents

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 Chapter 1
INTRUDUCTION TO THE INDUSTRY

Indian Mining Sector

India is a very vast and extensive country; it spreads over an area of 3.29 million square
kilometers, making it the seventh largest country in the world. The mining industry is the
backbone of Industries in India, since it is the main source of raw material for most of the
industries. India produces as many as 84 minerals comprising 4 fuels, 11 metallic, 49 non
metallic and 20 minor minerals.

Indian Mining Sector-History

India's mining activities and development dates back to early stages of civilization. It can be
traced back to nearly 6000 years. The existence of several old mine workings are a
testimony to this fact. Some of these workings have significant mineral deposits, which are
still active in present age. Few e.g. of such workings would be lead-zinc deposit at Zawar,
copper deposit at Khetri and gold deposits in Karnataka. During ancient times India was
well advanced in the process of smelting. The rust free iron pillar in New Delhi is believed to
date back to the 4th century.

1.1.2 India's Position in Minerals & Mining Sector India produces as many as
86 minerals which include 4 fuels, 10 metallic, 46 non-metallic, 3 atomic and 23 minor
minerals (including building and other materials);

India ranks 2nd in barytes, chromite and talc/steatite/pyrophillite;

India ranks 3rd in coal & lignite and bauxite;

India ranks 4th in iron ore and kyanite/sillimanite;

India ranks 5th in manganese ore and steel (crude);

India ranks 7th in zinc; andRanks 8th in aluminium

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1.1.3 Production Trends

Minerals Based on the overall trend so far, the index of mineral production (base 1993-
94=100) for the year 2008-09 is estimated at US$ 37.66 million as compared to US $ 36.84
million for 2007-08 showing a positive growth of 2.34 per cent. The total value of mineral
production (excluding atomic minerals) during 2008-09 is estimated at US$ 24.89 billion,
which shows an increase of about 7.10 per cent over that of the previous year. During
2008-09, value for fuel minerals accounted for US$ 15.68 billion or 62.25 per cent metallic
minerals, US$ 6.27 billion or 25.17 per cent of the total value and non-metallic minerals
including minor minerals US$ 2.95 billion or 11.84 per cent of the total value.

Metallic Minerals The value of metallic minerals in 2007-08 at US$ 5.16 billion increased by
about 31 per cent over the previous year. Among the principal metallic minerals, iron ore
contributed US$ 3.97 billion or 76.9 per cent, chromite US$ 433.86 million or 8.4 per cent,
lead & zinc (concentrate) US$ 231.89 million or 4.5 per cent, manganese ore US$ 235.79
million or 4.6 per cent, copper (concentrate) US$ 82.26 million or 1.6 per cent, bauxite US$
112.98 million or 2.2 per cent, gold US$ 60.83 million or 1.17 per cent, while the remaining
was jointly shared by silver and tin concentrates.

1.1.4 Government in the Mining Sector

• Survey and exploration

o Geological Survey of India (GSI)

o Mineral Exploration Corporation Ltd (MECL)

• Regulation and conservation

o Indian Bureau of Mines (IBM)

• Mining and processing

o Hindustan Copper Limited

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 o National Aluminium Company Ltd

1.1.5 Major Players in the Mining Sector

The major players in the mining sector are classified on the basis of the minerals produced
by them namely,

• Exploration and production of coal/lignite: Coal India Ltd, Neyveli Lignite Corporation,
IISCO, etc.

• Exploration of metals (copper, bauxite, iron ore, chromite, lead - zinc): National
Aluminium Company Limited (NALCO), Bharat Aluminium Company Limited
(BALCO), Mineral Exploration Corporation Ltd, Bharat Gold Mines Ltd (BGML), Oil
and natural gas Corporation (ONGC), Hindustan Zinc Ltd, Hindustan Copper Ltd
(HCL), etc.

• Iron Ore Sector: National Mineral Development Corporation, Kudremukh Iron Ore
company, Steel Authority of India Ltd, Orissa Mining Corporation.

• Bauxite mining and aluminum production: National Aluminum Company.

• Copper-ore mining: Hindustan Copper Ltd.

 Rock-phosphate and barites mining: Rajasthan State Mines and Minerals Ltd,
Andhra Pradesh Mining Development Corporation.

1.1.6 Mining Techniques

Mining Techniques is divided into two types: surface mining and underground mining. Mining targets
are divided into two categories of materials: placer deposits and lode deposits. If a mineral
is stable chemically and is resistant physically, it can be eroded from its primary hard-rock
occurrence and transported to river channels, deltas or other sedimentary environments
where it can be deposited in a sedimentary bed. Diamonds, gold and other gemstones can
be found in placer deposits. Lode deposits are a very important source of precious metals,
although they also can contain base metals. Deposits like these are found in greenstone
belts, areas of metamorphosed volcanic or sedimentary rocks. The deposits themselves

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can have almost any host rock, but manic volcanic rocks, falsie intrusive rocks and some
sedimentary rocks are the most common ones. Both types of deposits are mined by surface
and underground methods.

Chapter 2
INTRODUCTION TO THE ORGANIZATION

Hindustan Zinc Limited (HZL) is one of the India’s leading Zinc–Lead producers and
exceptional in its extent of its technological coupled with vertical integration in other non-
ferrous metals.

Hindustan Zinc Ltd. was created from the erstwhile Metal Corporation of India (MCI)
on 10th January 1966 as a Public Sector Undertaking. In April 2002, Sterlite acquired a
46% interest in HZL from the Government of India and the open market, and it became a
part of the Sterlite group. Since then HZL has been growing from strength to strength. In
August 2003, Sterlite acquired a majority state in HZL by acquiring another 18.9% interest
from the Government of India.

HZL has broad based operations, its spectrum of activities range from exploration,
mining and ore processing to smelting and refining of lead, zinc, cadmium, cobalt, copper
and other precious metals. The company is looking forward to opportunities in gold, other
minerals and new business areas.

HZL produces Zinc, Lead and by-products viz. Sulphuric Acid and Silver. HZL
achieved an all-time high production output of 283,698 tones Zinc and a record
production of 889,007 tones of Zinc concentrate during 2005-06.Today HZL is India’s
leading Zinc producer. Revenue of Rs 8,017 crore higher by 41% compared to
previous year. PBDIT of Rs 5,392 crore up by 47% compared with FY 2009.

Demand in Indian market for refined Zinc increased by 25% to 525 kt in FY 2010,
FROM 419 KT in the previous year. Profit during the year was Rs 4,041.41 crore, higher
by 48% compared to the previous year.

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 In its life span, HZL has endeavored to aim for a steady improvement in its
operations through forward planning, excellent team work, research an development
and technology updating as a result the company has almost taken the country to level
of self sufficiency in zinc.
Being a proud inheritor of world’s oldest technology, HZL is continuing the tradition
and gearing itself to recapture a position among the prime products of the world.

THE IMPRESSIVE GROWTH

HZL has since grown into a large Multi-unit and Multi- product company producing
152,000 tones of zinc and 65000 tones of lead per annum besides silver and other by-
products. The discovery of world class deposit of 60.36 millions tones at Rampura Agucha
mines containing 15.4% metals has dramatically altered the prospect of not only reducing
the cost of producing zinc and lead ,but also the expansion of HZL’s production capacity
resulting in increasing the demand satisfaction up to 82% for zinc and 61% for lead.

THE VISION

Change environment in India and the rapid development in the world have profound
implications on HZL’s operations and further growth, requiring adoption of proacting
strategies. The Corporate Planning Group (CPG) in the process of formulation of the
Corporate plan for the period 1997-2002 conducted situation analysis by scanning socio-
political economy and technological environment and adopted the VISION as: -

 Be a major natural resource company with diversified businesses leveraging the

competitive advent ages offered by its mineral resource portfolio and competencies,
inculcation best management practices based on efficiency. TQM concepts and
trust.

 Be a world class zinc company, creating value, leveraging mineral resources and
related core competencies.

THE MISSION

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 ⇒ Be the lowest cost Zinc producer on a global scale, maintaining market leadership.
⇒ Be innovative, customer oriented and eco-friendly, maximizing stakeholder value.
⇒ Be the largest integrated producer in the world with a Zinc-Lead metal production
capacity of one million tones by 2010.
THE OBJECTIVE

⇒ To increase smelting capacity so as to maintain and enhance market.

⇒ To locate world-class lead and Zinc deposits by grass-root exploration either
independently or through joint venture.
⇒ To diversify, into other mineral based industries and precious metals and important
infrastructure sectors like power.
⇒ To attain international levels of productivity and quality standard through HRD
efforts and intense R & D and technology up gradation in mining, benefaction, and
smelting.
⇒ To utilize technologies for optimizing energy consumption.
⇒ To adopt the best international practices for environment protection and safety.
⇒ To maximize generation of nitration of internal resources for financing its expansion
and diversification activities.

⇒ To strengthen the image as the organization with commitment to excellent amongst

all concerned.

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ASSETS AND ACQUISITIONS OF HZL

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 USES OF PRODUCTS
ZINC
1) 70% of total Zinc production is used for galvanizing purpose.
2) 12% of the total zinc production is used in dry cells.
3) 5% of the total zinc production is in die-casting.
4) The balance 13% of the Zinc production is used for Zinc oxide, Zinc dust chemicals
and other purpose.
5) Paints and pigments.
6) Chemical for rubber industry.

LEAD
A wander metal is used in batteries, power vehicles, radiation shield, sound insulators,
storage tanks for chemicals, solders, etc.

CADMIUM

This is a multipurpose metal, finds use in the manufacture of alkaline batteries,

electroplating, anti-friction alloys and pigments.

SULPHURCACID

It is a bountiful chemical used to manufacture fertilizers, acids, dyes, drugs, explosives,

textiles, rayon, photographic films, liquor, etc.

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 ZINC SMELTER DEBARI

Zinc Smelter Debari, owned by HZL is located on state highway No. 9 on the way to
Udaipur to Chittor. On commissioning its rated capacity was 18000 MT per annum of zinc.

In a sort span of 36 year the growth of this smelter has been phenomenal on all the
fonts including production, commercial activity, environment protection and meeting Debari
Zinc Smelter, a premier Smelter of Hindustan Zinc Ltd., is engaged in the production of
high-grade Zinc metal and other by-products – cadmium and Sulphuric Acid since 1968
adopting hydro metallurgical technology. In November 98, ZSD was certified as an ISO
-9002 companies for its quality performance.

The plant was commissioned in 1968 with capacity to produce 18000 tones of Zinc,
72600 tones of Single Super Phosphate and 76 tones of Cadmium. Soon the capacity was
expanded to accommodate for continuous increase production of Zinc Ore. near ZSD the
CRDL unit i.e. Central Research and Development Laboratory where all the scientific and
process development in regard with the process as well as the techniques.

PERFORMANCE:
DZS has achieved impressive growth pattern and continuous endeavors are being made to
improve the production as well as productivity. Emphasis is given for energy, conservation
and improvement in recovery efficiency and reduction Process in chemical consumption
which is prime factors in controlling the cost of production. In order to sustain above
achievements, TQM (Total Quality Management) and Workmen’s participation through
suggestion scheme in vogue.

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SALIENT FEATURES:

Year of establishment : February 1968

Annual production capacity
Zinc ingot : 59000 MT
Sulphuric acid : 87000 MT
Cadmium : 250 MT
Zinc dust : 3600 MT
Process used : hydrometallurgy
Covered area : 37.6
Total plant area : 200.3
Maximum power demand : 36.5 MW
Capital investment : Rs. 117.63 cores
Process collaborators Krebs’s pennnaroya’ France: Leaching, purification & Electrolysis
Lurgi gmbh,
Germany : Roster & Gas Cleaning
I.S.C. Alloys, UK : Zinc Dust Plant
Austriana –De_Zinc, Spain : Capacity Enhancement in Leaching & Z.E.

QUALITY POLICY & QUALITY OBJECTIVES

HZL & its various units strongly lay emphasis on quality. ZSD, a unit of HZL, is also
committed to produce high grade zinc i. e. 99.95% pure as well as Cadmium and Sulphuric
acid with total customer satisfaction in an Eco-friendly & safe environment. It aims at
continuous increment in product quality and productivity to achieve excellence.
It has the following quality objectives:
 To produce zinc ingot, cadmium of minimum 99.95% purity and sulphuric acid of 95
% concentration.
 Consistent improvement in zinc recovery beyond 93% and in cadmium recovery
beyond 75%.
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 To Improve:
⇒ Productivity with technology up gradation.
⇒ Capacity utilization.
⇒ Skills of available human resources in Eco-friendly & Safe Environment.
The company has received ISO 9002 Certification for Quality system & Quality assurance.
In a nutshell we can say that the company aspires to improve Productivity, safety,
automation and environment control keeping in mind its Quality policy & objectives.

DEPARTMENTATION:

All the Departments of Zinc Smelter Debari are categorized under the following heads.
⇒ Production Departments
⇒ Service Departments

PRODUCTION DEPARTMENTS:

Those departments which are directly engaged in the machine operation

& production of Zinc Ingot are known as production departments. The following
departments are categorized under this heading.

(1) Roaster and Acid Plant.

(2) Leaching, Purification and Cadmium Plant.
(3) Zinc Electrolysis and Melting Plant.

SERVICE DEPARTMENTS:

The Departments, which are indirectly engaged in the production of Zinc

Ingot by providing some sort of, service to the production departments, they are categorized
as under:-

(1) Personnel and Administration Department.

(2) Industrial Engineering Cell.
(3) Safety Department.
(4) Stores Department.
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 (5) Sales Department.
(6) Account Department.

Safety Department

In every production oriented organization one of the most important prerequisite is safety. If
in an organization safety precautions are overlooked, then it can sometimes cause serious
accidents, which lead to loss of mankind and ceases production activities.
It looks after the safety of the people working in the smelter and the factory. It keeps
vigilance on the safety conditions prevailing in the whole organization it provides all the
necessary safety equipment to the employees in the order to protect the employees from
the acid and harmful gases. It is crucial department.

S- (Sound) “ thinking concerning the nature of the job”

A – (Alertness) “to danger”

F- (Factoring) “the entire operation into the safe requirement”

E-(Efficiency) “In carefully performing the work.”

T- (Thoughtfulness) “For the welfare of the group in which the

Workers is Attached”

Y – (You) “your own Protection and job”.

SAFETY (TO MINIMIZE THE RISK OF JOB AWARENESS)

Store Department

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The main function of the stores department is to store and control all the items of inventory.
For this purpose there exists a proper coding system i.e. there is a separate code for
inventory. There are 11000 items in inventory. This deptt. Keeps check on the requirement
of the various materials.

In brief it has the following functions:

⇒ Procurement Of Materials
⇒ Storage
⇒ Issue Of Material
⇒ Inventory Control

STORES RECORDS

As regards the documentation, right from the time when material is received to the time it is
issued separate documents and vouchers are prepared.

⇒ Receipt Cum Inspection Report (RCIR)

⇒ Stores Issue Voucher (SIV)
⇒ Store Return Note (SRN)

Sales Department

All sales are affected through the central marketing office, New Delhi. The interested parties
contact at this office. The selling price of Zinc ingot is the monthly weighted average of the
price quoted by London Metal exchange. The credit policy is to offer 90 days credit to
customer purchasing more than 400 tones of Zinc ingot in a month and 60 days credit for a
customer who purchases less than 400 tones in a month. For ensuring the creditability of
the customer, a letter of credit is to be submitted by the customers at the CHO through this
letter the customer’s bank takes guarantee of prompt payment on behalf of the customers.
The main function of accounts department is to keep systematic records of all financial
transactions. Accounts department is further divided in different sections.

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 ⇒ Costing/ Budgeting Section
⇒ Book-keeping Section
⇒ Cash Section
⇒ Contractor Bills Section
⇒ Excise & Cenvat payment section
⇒ Establishment Section
⇒ Stores accounting and suppliers Bills Section
1) Costing/ Budgeting Section:
The main function of the costing department is to prepare monthly and annual cost
sheet, which gives in formation regarding the cost of production, allocation and
apportionment of cost. The costing department is responsible for the annual cost audit
of sulphuric acid (which is statutory) costing section also prepares Revenue and Capital
budgets, which are to be submitted to the Head office latest by July every year.

2) Book keeping:
Book keeping section is mainly engaged in the preparation of Final account i.e. Profit
and loss account and Balance sheet. There exists a systematic coding system for the
collection and classification of data under various heads of income and expenditure. A
code consists of five digits. All the entries are first made, voucher wise in the, Journal
book, if it pertains to cash it is posted in the cashbook and all others are posted in the
General lodger. With the help of computers and cell address programs Trial balance,
Profit and loss account and balance sheet is prepared. The method of depreciation
adopted here is Straight-line method. The final accounts are prepared for each quarter
and finally consolidated to prepare annual final accounts.

3) Cash:
The main function of the section is providing payment for all cash vouchers (C.V.)
The payment may relate to Salary, incentives, advances for medical treatment and
leave travel concessions. The payment of bills of contractors etc is also made here. The
cash section prepares a daily cash book for all transactions which take place in a day
and after checking the accuracy it is sent to the Computer section for Punching from
where the monthly trail balance is prepared.

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All the payments except salary to workers are made through cheque or crossed demand
drafts. For signing the cheque authority has been delegated to five persons and signs of
at least two persons are required in every cheque.

4) Contractor Bills section:

The main function of Contractor section is to deal with the entire contract works at
Debari. Whenever any contract work is to be done the contractor section assigns the
contract work to the selected parties after tender inquiries. A formal contract is made
with the contractor specifying all the terms and conditions and the contract schedule.
After certifying the work payment is made for the work certified.
5) Excise and Cenvat:
This department deals with all the indirect taxes which are levied by the central
government on Production and Sale activities. When Zinc concentrate is transferred to
the smelter, Govt. collects excise on the raw material subsequently when the raw
material is converted into finished product i.e. zinc ingot again on the production excise
duty is payable so order to avoid this double taxation the balance amount (Excise on
finished products-excise on row material) is claimed through CENVAT (Central Value
added tax.) So this department periodically prepares a statement specifying separately
the excise that has already been paid on all the raw materials and the excise standing to
the credit on account of the finished product. They have an account in SBBJ from where
all the payments in this regard are done. This department also deals with the legal
procedure if refund is to be claimed from the Govt. if there is a dispute.

6) Establishment:
The main function of Establishment section is to prepare monthly salary statement of
all the employees. The salary is paid on basis of attendance; daily respective
departments send their employee’s attendance to the personnel department.

For calculating salary, besides basic pay additions are made regarding Dearness
allowance, special pay, overtime payment, acting allowance, house rent, production
performance award etc. and deductions regarding Provident fund, transportation charge
(bus) , House rent, LIC, death benefit scheme, Voluntary provident fund, loans etc. The
Establishment section also looks after the reimbursement of medical bills, TA Bills, LTC
bills etc.

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 7) Store accounting and Suppliers Bills Section :
This section deals with the accounting of stores materials. Priced stores Ledger is
maintained on the basis of weighted average method and proper record of SIV, RCIR
and SRN are kept. This section gives accounting codes. Supplier’s bills section passes
the bills of all type of supplies made by suppliers. Necessary advance, payment and
other adjustments in accounting books are done in this section.

PLANTS AND THEIR LOCATIONS

MINING

1. Rampura Agucha Mine

 Ore Produced in FY 2010 : 5,135,625 tones
 Type of Mine : Open Cast
 Reserves : 75.71 million tones
 Resources : 44.65 million tones
 Reserves Grade : Zinc – 14.23% & Lead – 1.99%
 Ore Production Capacity : 6.00 mtpa

2. Sindesar Khurd Mine

 Ore Produced in FY 2010 : 444,715 tones
 Type of Mine : Underground
 Reserves : 10.74 million tones
 Resources : 50.08 million tones
 Reserves Grade : Zinc – 5.45% & Lead – 2.95%
 Ore Production Capacity : 0.50 mtpa

3. Rajpura Dariba Mine

 Ore Produced in FY 2010 : 501,282 tones

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  Type of Mine : Underground
 Reserves : 7.80 million tones
 Resources : 34.41 million tones
 Reserves Grade : Zinc – 6.25% & Lead – 1.40%
 Ore Production Capacity : 0.90 mtpa

4. Zawar Mine
 Ore Produced in FY 2010 : 1,020,250 tones
 Type of Mine : Underground
 Reserves : 7.85 million tones
 Resources : 53.36 million tones
 Reserves Grade : Zinc – 3.66% & Lead – 1.95%
 Ore Production Capacity : 1.20 mtp
SMELTING
1. Chanderia Smelting Complex
 Production in FY 2010:
Zinc - 436,909 tones
Lead - 71,627 tones
Silver – 176 tones
 Capacity :
Zinc – 525,000 tones
Lead – 85,000 tones
Silver – 168 tones

2. Debari Zinc Smelter

 Production in FY 2010:
Zinc – 87,347 tones
 Capacity :
Zinc – 88,000 tones

2. Vizag Zinc Smelter

 Production in FY 2010:
Zinc – 54,148 tones

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  Capacity :
Zinc – 56,000 tones

POWER GENERATION
1. Debari Zinc Smelter
 Type : DG Set
 Capacity : 14.81 MW
 Type : Waste Heat Recovery
 Capacity : 6.5 MW

2. Chanderia Smelting Complex

 Type : DG Set
 Capacity : 14.81 MW
 Type : Waste Heat Recovery
 Capacity : 13.7 MW
 Type : Coal Based
 Capacity : 234 MW

3. Samana Wind Power Plant

 Type : Wind Energy Farms
 Capacity : 88.8 MW

4. Gadag Wind Power Plant

 Type : Wind Energy Farms
 Capacity : 34.4 MW

25
 FINANCIAL HIGHLIGHTS

Summary of operating results of Zinc Smelter, Debari

In Tones FY 2010 FY 2009

Refined Zinc 87,347 85,191

Sulphuric Acid 290,188 267,463

MARKET SHARE OF HZL

26
 ENTITY PERCENTAGE

Sterlite Industries {India} Ltd. 64.92%

Government of India 29.54%

FII’s 2.18%

General Public 1.46%

Banks Fin. Inst. & Insurance 0.53%

Private Corporate Bodies 0.48%

OPERATING CAPACITY

The important operating metrics for the mines are given:-

Name of Type Production FY 2008 Planned Reserves Resources

the Mine in FY 2008 Capacity Capacity {M.T.} {M.T.}
in tones {M.T.} for 2010
{M.T.}

Rampura Open Cast 4,068,215 5 6 63.56 43.77

Agucha

Sindesar Underground 295,200 0.3 1.5 1.96 35.31

Khurd

Rajpura Underground 518,049 0.6 NA 7.07 17.60

Dariba

27
Zawar Underground 901,635 1.2 NA 7.18 41.91

FINANCIAL STATEMENT

Particulars 2006 2007 2008 2009 2010

Turnover
3,877 8,560 7,878 5,680 8,017
PBDIT
2,418 6,639 6,231 3,665 5,392

Tax 757 2,012 1,589 631 973

PAT 1,472 4,442 4,396 2,278 4,041

Gross Block 3,048 4,135 5,647 6,964 9,354

Net Block 1,918 2,871 4,163 5,213 7,277

Share Capital 423 423 423 423 423

Net Worth 3,430 7,628 11,849 14,358 18,124

28
 Total Debt 558 0 0 9 60

Capital Employed 1,751 3,104 4,153 4,718 6,248

ROCE {%} 83.47 138.96 93.58 44.07 57.51

EPS 34.85 105.12 104.04 64.55 95.65

DPS 2.50 5 5 4 6

Book Value Per Share 81.17 180.51 280.41 339.80 428.94

VENDOR MANAGEMENT

VENDOR

A Vendor is a person or company providing merchandise or services to a retail store.

Also Known As: Supplier

General Use: Manufacturers, wholesalers, distributors and service providers can all be
vendors. Most retailers separate their vendor lists into merchandise and non-merchandise
vendors.

A vendor (pronounced VEHN-duhr, from French vendre, meaning to sell) is any

person or company that sells goods or services to someone else in the economic
production chain. Parts manufacturers are vendors of parts to other manufacturers that
assemble the parts into something sold to wholesalers or retailers. Retailers are vendors of
products to consumers. (When you have a street fair, the people who set up booths and
tables are often referred to as vendors.) In information technology as well as in other
industries, the term is commonly applied to suppliers of goods and services to other
companies.

MANAGEMENT

29
 Management is a creation and maintenance of an internal environment in an
enterprise where an individuals working in groups, can perform efficiently and effectively
towards organizational objectives.

VENDOR MANAGEMENT PROGRAM

A Vendor Management Program can help you not only find out who you’re doing business
with, but help you do business with them more efficiently and effectively.

IMPORTANCE OF VENDER MANAGEMENT

Managing a vendor file may seem to be a mundane clerical task. The implications of
not managing may be significant. Some key reasons for paying attention to how your
vendor file is managed are:

1. Identify your vendors: This may seem obvious, but many companies lack basic
information about their vendors. Information in your purchasing and accounts payable files
may be inaccurate, redundant, out of date or incomplete. Review your files to eliminate
redundant vendors. Link related vendors to enable meaningful reporting.

These activities can take a lot of effort but are critical to achieving significant payoffs. Some
direct immediate benefits are fewer duplicate payments, fewer checks, and lower postage.

2. Beef up vendor information: Augment your vendor files with information that’s useful
for analysis. Basic information you may want to add includes SIC codes, taxpayer
identifiers, telephone numbers, type of organization, types of products or services, how long
vendors have been in business, and size. More important, find out if vendors are EDI
capable, are ISO 9000 compliant and take Procurement Cards.

This additional information is a starting point for the financial planning and analysis that
leads to smart decisions.
30
3. Analyze your expenditures: Determine where money is spent - by vendor, type of
vendor, areas of your organization and trends over time. Build databases and analyze data
to better understand how you’re doing. Benchmark against others. Find where savings and
opportunities exist.

4. Buy, spend and pay smarter: Here’s where you begin to reap the dividends. With better
information about spending, you can negotiate better deals.

5. Make life easier for vendors (and yourself): Develop a vendor setup and verification
process. Where appropriate, get electronic inputs from vendors using EDI or Procurement
Cards. Approve, pay and reconcile electronically. Provide online access to vendors to
reduce phone inquiries.

6. Reduce the potential for fraud: By managing the vendors, it can reduce the fraud if any
by checking the genuinely of the vendor in terms of his reputation.

7. Reduce duplicate payments: By properly maintaining the vendors list, it helps us to

save extra bugs by not paying them repeatedly.

8. Know how much money you're spending and who you're spending it with: It gives
an idea how to trade with the parties.

“Save money by purchasing, processing and paying smarter.”

31
 VENDOR MANAGEMENT AT HZL, DEBARI

Vendor Selection

Create Purchase Order

Invoice Creation

Payment made

Vendor Rating

HZL, Debari is using the above process for managing the vendors. The first step in
vendor management is to select the vendor or supplier for the fulfillment of particular
requirement. Then, a purchase order is created to give official order to the vendor to supply
32
the goods. After the goods received, an invoice is created for payment and after double
checking all the fields; the payment is made to the vendor.
After payment the vendor becomes the part of the master database of HZL,
then the vendor evaluation process is performed to analyze whether the vendor’s service is
up to the mark or not.

STEPS IN SELECTION OF VENDOR

USER RAISES THE INDENT OF REQUIRED

ITEM

INDENT SEND TO COMMERCIAL

DEPARTMENT

ISSUE TENDER TO INVITE OFFERS

/QUOTATIONS

QUOTATION OF VARIOUS PARTIES

COMPARATIVE STATEMENT OF OFFERS

RECORD FROM VARIOUS PARTIES

33
 NEGOTIATION WITH PARTIES

PLACE ORDER FOR LOWEST QUOTE

WITH BEST QUALITY

After selecting the vendor who provides best quality with lowest cost, the material is
received at the time scheduled by the stores department.

CLASSIFICATION OF PURCHASING GOODS

In general purchase material and services can be grouped into the following
categories

1. Raw materials: Raw materials are materials which have undergone no

transformation or a minimal transformation, and they serve as the basis
materials for a production process. Examples iron ore, coal and copper.

2. Supplementary materials: These are materials which are not absorbed

physically in the end product; they are used or consumed during the
production process. Examples lubricating oil, cooling water and industrial
gases.

3. Semi-manufactured products: These products have already been

processed once or more and they will be processed further at a later stage.
They are physically present in the end product. Examples are steel plates,
rolled wire and plastic foils.

4. Components: They are manufactured goods which will not undergo

additional physical changes, but which will be incorporated in a system with

34
 which there is a functional relationship by joining it with other components.
Examples are headlight unit, batteries, lamps etc.

5. Finished products: These encompass all products which are purchase to be

sold, after negligible added value, either together with other finished products
or manufactured products. Examples are striping, car radio etc.

6. Investment goods: These are the products which are not consumed
immediately, but whose purchasing value is depreciated over a period of time.

7. Maintenance, repair and operating materials: These products sometimes

refer to as indirect materials or consumable items represent materials which
are necessary for keeping the organization running in general and for support
activities. Examples are office supplies, cleaning materials and copy paper,
spare parts etc.

8. Services: Services are activities are executed by third parties on a contract

basis. Services can range from providing cleaning services hiring temporary
Labour to having a new production facility for a chemical company designed
by a special contractor.

PURCHASING PROCESS APPROACH

Define
Specificatio Evaluation
n

Select
supplier Expediting

35

Contract agreement Ordering

DEFINE SPECIFICATION:

During this initial stage of the purchasing process, the purchasing requirements are
determine and the company is also faced with the ‘make or buy’ questions. It has to
determine which products or activities will be produced or performed by the company
itself, and which product or activities will be contracted out. This process starts by
drawing up the specification of those items that will be purchased, these are:
 A functional specification:

This describes the functionality which the product must have for the user.
User refers to the person who actually uses the product that is to be bought.

 A detailed technical specification:

This describes the technical properties and characteristics of the product as well as the
activities to be performed by the supplier.

 Purchase order specification:

It comprises the following:

o Quality specification

o Logistics specification

o Maintenance specification

36
 o Legal and environmental requirements

o Target budget

SELECT SUPPLIER:

The steps of selection of supplier contain a number of separate steps:

o Determining on the method of subcontracting: The first issue to be dealt with in

supplier selection is whether to opt for turnkey or partial subcontracting. In the case
of turnkey subcontracting responsibility for the execution of the entire assignment is
placed with the supplier. In case of partial subcontracting assignment is divided into
parts which are contracted out separately, often to various suppliers. Co-ordination
rests with the principal. Partial sub-contracting usually results in saving.
A second decision to be made at the stage at is whether the work will be awarded on
a fixed price, cost-reimbursable basis. When work is executed based on a fixed price
contract, the principal orders the supplier to perform the required activities at a fixed
price, and to have the work completed by a predetermined date.
In case of a cost-reimbursable contract the nature and scope of the activities to be
performed are not establish in advance. The principal orders the supplier to perform
the required activity at a predetermined hourly rate, sometimes in combination with a
prearranged percentage to cover the overhead cost.

o Preliminary qualification of suppliers and drawing up the ‘bidders list’: The important
points to be remembered are:
• Summarizing the pre qualification requirements, based on the purchase order
specification that the suppliers who are going to be approached for a
quotation will have to meet.
• Assembling the initial bidders list that indicates which suppliers may probably
do the job. Next, these suppliers are contracted to provide references and
information about their qualification.

o Preparation of the request for quotation and analysis of the bids received: After
receipt of the quotations, the purchasing department will make a preliminary

37
 technical and commercial evaluation, during which all relevant aspects are
acknowledged. The technical, logistic, quality, financial and legal aspects need to be
weighed. Ranking scheme may be used with a different degree of sophistication in
order to facilitate the process of evaluating the supplier’s bids. These schemes are
used jointly between users and buyers.
o Selection of the supplier: Ultimately one supplier will be selected with whom delivery
of the product will have to be negotiated. The suppliers who are not selected are
informed about the reasons for rejecting their proposals.

CONTRACT AGREEMENT:

o After the supplier has been selected, contract will have to be drawn up. Depending
on the industry, the contract may refer to specific additional terms and conditions.
The technical contents of the purchase agreement naturally depend on the product
or project that is to be purchased. Specific commercial and legal terms and
conditions will vary per contract, differences been caused by purchasing policy,
company culture, market situation, product characteristics etc. this limits the use of
standard purchase contract. The next section proceeds to discuss several important
aspects of purchase agreement. Different price arrangements are used in purchase
agreement:

o Fixed price plus incentive fee

o Cost-plus contract
o Cost reimbursable contracts
o Agreement with price-adjustment

ORDERING:

After the terms and conditions of the contract have been agreed and recorded, the order
can be placed. In some cases the contract in fact in the purchase order. A purchase order
usually is initiated through a purchase order requisition or material; requisition.
When ordering from a supplier, it is very important to be specific about the information and
instructions to the suppliers. Generally a purchase order will include the following entities:
38
an order number, a concise description of the product, unit price, number of unit required,
expected delivery time or date, delivery address and invoicing address.

EXPEDITING:

Expediting demands allot of attention and is often conducted based on an overdue list,
which records all deliveries that are late. There are several types of expediting:
o Exception expediting: This method is referred to as the ‘beep system’ which means
that the buyer only undertakes actions when the organization sends out signals of
material shortages.
o Routine status check: This method of expediting aims at preventing material supply
and quality problems.
o Advance status check: This method is used for critical purchase parts and
suppliers. Critical may refer to supplies which are on the critical path of material
planning.
EVALUATION:
The buyer’s role continues even after the new product has been taken into production, or
the new installation has been put into operation. Things which can go wrong in the
relationship with the supplier and which have to be taken care of at the stage are:
o Settling warranty claims and penalty clauses.
o Settling the results of work in excess of, or work less than, that stated in the
specification.
o Organizing the purchase and supplier documentation.
o Recording project evaluation.

Experiences with individual suppliers should be documented carefully. It is recommended

that buyers keep track of the supplier’s quality and delivery record, his competitiveness and
innovativeness since these data can lead to an adjustment of the so-called “vendor rating”.
It is important to have a thorough and up to-date record of the actual capabilities of each
supplier. Reporting this kind of information both to the management and supplier’s
management is one major source of added value contributed by the buyer. This information
can be used in its subsequent purchasing cycle to assemble the “bidder’s short list” for
future projects and contracts. When companies learns to work with suppliers with proven
39
capabilities. When companies learn to work, this usually results in a reduction of supplier
base. But companies will gradually concentrate their business among fewer but more
capable suppliers.

During after-sales phase, the buyer’s added value is primarily related to the following:

o Settling claims, with regard to work not covered in the specification.

o Recording the users experience with specific products and suppliers by use of detail
vendor rating system.
o Recording maintenance experience.

PURCHASING FUNCTION

TECHNICAL DIMENSION COMMERCIAL DIMENSION

• Determine specifications of • Supply market research

goods and services that are • Supplier visits
to be purchased • Request for quotations
• Audit supplier’s quality • Evaluate quotations
organizations • Negotiations with supplier’s
• Value analysis
• Quality control
• Supplier’s selection
• Draw up contract

LOGISTICAL DIMENSIONPurchasing Function ADMINITERATIVE

DIMENSION
• Optimization of ordering
policy in co-operation with • Order handling and filling
inventory control • Checking non marketing
• Order expediting and follow supplier invoices
up • Checking payments to
• Incoming inspection suppliers
• Monitoring delivery 40
reliability
 Purcha

sing and supply activities have four main dimensions:

1. A Technical Dimension, which concerns the functionality, specifications and quality

of the purchase product.
2. A Commercial Dimension, related to managing the relation with the suppliers and
the contractual condition which must be negotiated and arranged.
3. A Logistic Dimension, which concerns all activities related to optimizing the
incoming materials flow from the supplier up to the point where materials are needed
and actually consume
4. An Administrative Dimension, relating to the efficient order handling, expediting
and follow up and handling of invoices.

41
 BOTTLENECKS AND PROBLEMS

Observation of numerous companies and institutions over many years has

demonstration that the purchasing process can be obstructed by the following situations:

• Supplier or brand specification: The use of particular brand or supplier’s

specification seriously limits the buyer’s commercial latitude with the supplier who
in most cases is well aware of the selection of his product. It may lead to situation
where the supplier selected can not meet the capacity and logistics requirements
of the company.

• Inadequate supplier selection: Selecting a supplier is one of most important

decision in the purchasing process, particularly if the product delivered required
many years of maintenance and service. Failure to check supplier’s reference
can produce very unpleasant surprise in shape of unexpected bankruptcy,
inability to meet quality requirements, unwillingness to keep up to warranty
obligation. it may become clear that the supplier, in order to land the contract, has
made promises about delivery times he cannot keep.

• Insufficient contracting expertise: If there are problems during or after delivery

the contract’s fine print comes into play. It can turn out that things thought to be
handled by the supplier, have to be paid for separately by the customer.
Misunderstanding about the handling of problems can be prevented by means of
a solid contract. Prevention is better than cure and editing of the contract is better
left to the buyer.

• Too much emphasis on price: Especially when buying capital equipment

buying decision need to be based upon total-cost-of-ownership rather than price
only. Many equipment manufacturers have adopted a sales strategy where they
charge a fairly low price for their equipment. However, there warranties and
services contracts required the customer to source spare parts and all
maintenance services from the original equipment manufacturer. If not done so
by the customer, the supplier ill not guaranty the functioning of the equipment.

42
 • Administrative organization: Placing orders can also cause big problems.
Sometimes there are no clear procedures with regard to procurement or
authorization of orders, which can lead to random ordering by everybody in the
organization. The result is lots of extra work in inspection of deliveries and in
making invoices payable.

VENDOR PAYMENT

1. Terms of Payment: Terms of payment will be defined by company, which will be

updated in vendor master for each vendor or at line item level. Terms of payment will
define the due date from, credit period and cash discount if applicable. The due date
will be calculated from a baseline date, which will be either of the following:

• Document date
• Posting date
• Entry date
• No default

2. Method /Media of Payment: The standard method of Hindustan Zinc Smelter is:

• a= cash

• c=cheque

• d=demand draft

• l= letter of credit

3. Exchange Rate Differences: In case of foreign currency transactions the difference

in the invoice amount and the payment amount will be accounted to either the
exchange rate gain a/c or exchange rate loss account as the case may be:

43
 Invoice entry @40 inr: 1 USD:

Asset a/c Dr. 100

Vendor a/c Cr. 100

Payment entry@ 41 inr: 1 USD:

Exchange rate loss capital Dr. 10
Vendor a/c Dr. 100
Bank a/c Cr. 110

Asset a/c Dr.10

Exchange rate loss capital Cr. 10

Vendor Advance Payment:

Advance payment shall be made in case where the terms of payment with vendor to the
delivery of goods or services. The advance payments made to vendor shall be tracked as
distinct from normal payments made to the vendor.
This procedure involves defining of alternative reconciliation a/c for vendor down
payments. The posting for down payment shall be carried out to a goods receipt a/c other
than the standard general ledger a/c for the vendor. The type of advances to vendor will be
tracked separately.

• Normal advance
• Capital advance

Payment of Advance:
Vendors are paid advance for some specific transaction. Hence special general ledger
transactions are used. In these transactions a down payment is taken to a separate
reconciliation a/c instead of the normal receivable a/c. an information message would be
flashed at the time of invoice looking that a down payment exists for particular vendor.
Making down payment:

Advance to supplier a/c Dr.

44
 Bank a/c Cr.

When the invoice is booked the following entry is passed:

GRIR a/c Dr.

Vendor a/c Cr.

PAYMENT PROCESS

• Automatic payment
• Manual payment

Automatic payment:
Hindustan zinc smelter will use the automatic payment method for only vendor payments.
Automatic payments configuration would be carried out for processing vendor payments.
The vendor selected at the time of automatic payment will be based on decision taken by
account department to process payments.

Manual payments:
There will also be a facility to pay manually to vendors. Manual payment will be made under
following condition:

• Where cheque are prepared manually.

• TDS, PF dues, which are deducted at various point of time, are to be paid on
particular date.
• Similarly various other payments, which are paid by demand draft on request.
• Manual outgoing payment will be used where there are certain other charges to be
expensed out at the time of making payment.

Deposits-Vendor:
Hindustan Zinc Smelter has a practice of receiving deposits from vendors at the time of
floating tenders. These deposits will be tracked separately and not clubbed with normal
transactions of purchase of goods and services.

45
Deposits will be paid or received by account department based on intimation received from
the respective department. The details of the vendor display line items to display details as
per the registered maintained, vendor name, document name, due date etc. the
maintenance of department are discussed:

1. Deposits from vendor.

2. Receipt/refund of deposits.

Earnest Security deposits/ money deposit received from vendors:

These are received from vendor will be treated as a separate special general ledger
transactions. Earnest money deposit is transferred to security deposit through journal
transactions for successful bidders.
The advantages of recording it as special general ledger
transactions is that it prevent user from clearing the security deposit received from
vendor with a purchase invoice .The security deposit receipt from vendor is debited to
security deposit a/c which is special general ledger a/c instead of a/c payable a/c.
A fixed percentage is deducted from the running bills received
from the vendor which will be accumulated into the security deposit a/c and will be
settled at the end on successful completion of contract.

VENDOR RATINGS

Vendor ratings are used to rate vendors as entities; however, they are also used to
rate different aspects of a vendor, such as its strategy, organization, products, technology,
marketing, financials or support. Vendors with a clear focus, solid products and an
advantageous market position may be rated "positive" or "strong positive." Vendors or
product lines that lack these qualities may be rated "caution" or "strong negative." Vendors
that have potential, but which we believe should be very carefully evaluated, are rated
"promising."
Additionally, vendors that are rated a "strong negative" are
put on a vendor alert list, while vendors that are rated a "strong positive" are put on a
vendor opportunity list. These vendors, in particular, will be closely monitored.

46
47
VENDOR RATING METHODOLOGY:

As industries have moved through their natural evolution, there have always been
periods of vendor shakeout — from vendors that fail to keep pace with the demand during
the rush to the "Peak of Inflated Expectations" to the consolidation that occurs during the
decreased buying associated with the "Trough of Disillusionment." Enterprises are most
vulnerable to vendor problems during these times. During the hyper-growth phase of an
industry, quality of delivery and service are often the major problems. During periods of
decline, lower purchase volumes threaten the viability of suppliers and consolidation takes
hold. In all of these cases, the IT investments that enterprises have made are threatened.
Vendor ratings are focused on providing enterprises with a single, focused source for
finding out Gartner's opinion of a given company. Vendor ratings provide insight, analysis
and advice on key indicators of a vendor's overall status and the status of initiatives such as
strategy, organization, products, technology, marketing, financials and support. Gartner's
ratings research methodology is structured around a consistent and broad view of a vendor:

Corporate Viability
• Strategy
• Financial
• Marketing
• Organization
Product/Services/Technologies
• Product/Service
• Technology
• Pricing
Customer Service/Product Support
• Sales/Distribution
• Support Services
We use these categories to rate vendors or product entities. Vendors with a clear focus,
solid products and an advantageous market position may be rated "positive" or "strong
positive." Vendors or product lines that lack these qualities may be rated "caution" or

48
"strong negative." Vendors that have potential, but we believe should be carefully
evaluated, will be rated "promising."

SAP {Software for recording vendor transactions}

SAP gives absolute visibility of our entire sourcing and procurement process by integrating
planning and purchasing with your supplier’s sales systems online. Which means we can
work with and manage all of our suppliers far more efficiently, in real time, or, if you’d like,
just the ones saving your money.
There are many benefits to implement an integrated solution such as SAP.
Commercial benefits would include having a single source for our financial information
capturing our business transaction in one location allows us to easily review inventory,
customer and vendor activity.
On the technical side, a solution on a single platform will enable easier maintenance
and support, reducing costs. Having a consolidated system means fewer interface to
support, by having a single system of record our human resource will become familiar with
terminology associated with this data and standard processes. This may improve
communication and create or work force that is easier to transfer between roles. Any
drawbacks to such a solution would depend on amount of restriction your chose to place on
our environment. New business solution may have to fit within the current system
technology must be compatible and human resource must adapt to handle data in certain
standard processes.

VENDOR RECONCILLATION
It is to reconcile the companies balance in accounts with the balance of vendor’s accounts
provided by the vendor.

49
 .

Chapter 3
RESEARCH METHODOLOGY

RESEARCH:
It comprises defining and redefining problems, formulating hypothesis or suggested
solution; collecting, organizing and evaluating data; making deductions and reaching
conclusions; and at last carefully testing the conclusions to determine whether they fit the
formulating hypothesis.

3.1 TITLE OF STUDY: VENDOR MANAGEMENT

3.2 DURATION OF STUDY: Duration of the project is 45 days from

15.6.2010 to 31.7.2010.

3.3 OBJECTIVE OF THE STUDY: The objective of the study is as follows:

Our motives behind the selection of the project “Vendor Management” are summarized as:

 What is the procedure of purchasing goods at HZL?

 What is the requirement of Vendor Management in HZL?
 To find out how HZL deals with their vendors.
 To know whether they are satisfied with quality and cost delivered by existing
vendors.
 To point out some loopholes, if any.

3.4 TYPE OF RESEARCH:

The research done by me is of “Exploratory Research Design” as it explores new facts
and ideas of the given area.

50
3.5 SAMPLE SIZE AND METHOD OF SELECTING SAMPLE:

“I took sample of size 25”

Sample Method – Non Random convenience Sampling Method is used.

Here non randomly employees are selected and I collected the information based on the
questionnaire filled up by the Sample employees.
Under Secondary Method I took the help of various reference books which I have
mentioned in bibliography and also by way of surfing through the company website.
The rational behind sampling in statistical analysis is to extrapolate from the data
collected from the samples and make general conclusions about the larger population
from which the sample was drawn.
There are many techniques of sampling that can be used to obtain a sample for
statistical analysis. The sampling technique used in the current study is Convenience
Sampling.

3.6 SCOPE OF THE STUDY:

The scope of my study at HZL, Udaipur is to know how much money you’re spending
and who you’re spending it with.
 So company will be benefited by making less expenditure for vendor.
 Save money by purchasing, processing and paying smarter.

3.7 DATA COLLECTION:

 Primary Data: was collected by filling up the questionnaire by the

respondents.

51
  Secondary Data: was collected from magazines, journals and company’s
website.

3.8 LIMITATIONS OF STUDY:

o Some employee not response properly.

o Limited time duration.
o No corporation of staff.

3.9 QUESTIONNAIRE DESIGN:

A questionnaire consists of a number of questions printed or typed in a definite order on

a form or set of forms.
To determine the satisfaction level of employees for vendors were
collected by means of closed questions. For the questions like to determine the time
horizon of vendor services, and documents to be prepared were asked in the form of fill in
the blanks.

3.10SAMPLE DESIGN:

 Relevant population : Employees of HZL, Debari

 Parameter of interest : Determination of satisfaction

Level of employees for vendors.

 Sampling Frame : Those who keep track of

Vendor.

 Size of sample : 25

52
 Chapter 4
Fact & Findings

Q1. Are you satisfied with the quality supplied by vendor?

Graph 4. 1

25
20
15
10
5
0
Yes No
Respondent 25 0
Q2. Are the existing vendors providing timely delivery?

Graph 4. 2

53
 20

15

10

0
Yes No
Respondent 20 5

Q3. Is any action has been taken at the time of late delivery (e.g. Penalty)?

Graph 4. 3

Q4. Is any kind 30

of internal audit
20
is performed at
the vendor? 10

0
Graph 4. 4 Yes No

Respondent 21 4

15

10

0
Yes No
Respondent 15 10

Q5. Do you rely on only one vendor for the same material?
54
Graph 4..5

15

10

0
Yes No
Respondent
Q6. Do you prefer the local market 10
vendors or outsiders? 15

Graph 4.6

10

4
2

0
Localite Outsiders Both
Respondent 10 7 8

Q7. Are you always responsible for transportation charges in all cases?

Graph 4.7

20

15

10

0
Yes No
Respondent 6 19
55
Q8. Do you conduct any survey for vendor selection?

Graph 4.8

20

15

10

0
Yes No
Respondent 20 5
Q9. Is supplier willing to provide any guarantee regarding design specification and technical
specification?

Graph 4.9

25

20

15

10

0
Yes No
Q10. Are you checking the vendor’s financial reliability?
Respondent 22 3

Graph 4.10

25

20
15
10
5

0
Yes No

Respondent 23 2

56
Q11. Are you satisfied with after sales service?

Graph 4.11

25
20
15

10
5
0
Yes No

Respondent 22 3

Q12. Is Company interested in purchasing and pursuing new technology?

Graph 4.12

25

20

15

10
5

0
Yes No
Q13. Is any vendor rating being done?
Respondent 22 3

Graph 4. 13

20

15

10

0
Yes No
Respondent 19 6 57
Q14. Are you using any parameters in benchmarking the performance of your purchasing
department against that of other company?

Graph 4.14

20

15

10

0
Yes No
Q15. Does vendor provide services to other industries
Respondent 20 and
5 if yes, whether they provide a list
of reference?

Graph 4.15

25

20

15

10
5

0
Yes No
Q16. What criteria you would use for selection
Respondent 21of potential
4 vendors?
a) Cost b) Quality c) Timely supply

Graph 4.16

58
 40%

30%

20%

10%

0%
Timely
Cost Quality
supply
Respondent 20% 40% 40%

CALCULATION OF CHI-SQUARE TEST

Observed Expected (O- (O-
S.No. Samples No. of Samples O-E O-E E)2/E E)2/E
Question
Yes No s Yes No (Yes) (No) (Yes) (No)
1 10 6 16 11.48 4.52 -1.48 1.48 0.19 0.48
2 12 4 16 11.48 4.52 0.52 -0.52 0.02 0.05
3 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
4 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
5 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
6 12 4 16 11.48 4.52 0.52 -0.52 0.02 0.05
7 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
8 14 2 16 11.48 4.52 2.52 -2.52 0.55 1.40
9 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
10 8 8 16 11.48 4.52 -3.48 3.48 1.05 2.68
59
 11 12 4 16 11.48 4.52 0.52 -0.52 0.02 0.05
12 13 3 16 11.48 4.52 1.52 -1.52 0.20 0.51
13 11 5 16 11.48 4.52 -0.48 1.48 0.02 0.48
14 13 3 16 11.48 4.52 1.52 -1.52 0.20 0.51
15 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
16 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
17 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
18 8 8 16 11.48 4.52 -3.48 3.48 1.05 2.68
19 12 4 16 11.48 4.52 0.52 -0.52 0.02 0.05
20 13 3 16 11.48 4.52 1.52 -1.52 0.20 0.51
21 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
22 12 4 16 11.48 4.52 0.52 -0.52 0.02 0.05
23 11 5 16 11.48 4.52 -0.48 0.48 0.02 0.05
24 13 3 16 11.48 4.52 1.52 -1.52 0.20 0.51
25 14 2 16 11.48 4.52 2.52 -2.52 0.55 1.40
TOTAL 287 113 400 4.51 11.91

(Total of row*Total of column/Total no. of question which have been asked)

287*16/400=11.48
113*16/400=4.52

x2 = ∑ (O-E) 2/E
For “Yes” Samples = 4.51
For “No” Samples = 11.91
Degree of freedom = (n-1)

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 Where n = 25
V = Degree of freedom = 24
x2. .05 (v=24) = 36.415
x2c< x2.05
2 2
X Tabulated value is less then calculated value of X

x2c< x2.05
• Interpretation: The x2c is less than the x2.05, therefore, there is no significant
difference between the observed answers given by employees and expected
answers. So, Hypothesis is Accepted.

Chapter 5

ANALYSIS AND INTERPRETATION

CHI-SQUARE TEST

Chi-Square is a statistical measure used in context of sampling analysis for

comparing a variance to a theoretical variance.

x2 = ∑ (O-E) 2/E

HERE:

61
  O = Observed value or frequency.

 E = Expected value or frequency.

Null Hypothesis Ho:

There is no significant difference between the Observed answers given by

Employees and expected Answers.

Alternative Hypothesis H1:

There is significant difference between the Observed answers given by

Employees and expected answers.

STEPS FOR CHI-SQUARE TEST

 Step 1: Find out expected frequency E.

 Step 2: Find the difference between observed and

Expected frequency i.e. {O-E}.

 Step 3: Divide the difference by expected frequency

{O-E} 2/E.

 Step 4: The level of significance = The hypothesis

Are tested on pre-determined significance

Level i.e. 5%

62
  Step 5: Compare the calculated value of x2 with

Tabulated value. Computation of appropriate

Value = for “Yes” samples = 4.51 & for “No”

Samples = 11.91

 Step 6: Testing the hypothesis = x2c< x2.05

x2 = ∑ (O-E) 2/E
For “Yes” Samples = 4.51
For “No” Samples = 11.91
Degree of freedom = (n-1)
Where n = 25
V = Degree of freedom = 24
x2. .05 (v=24) = 36.415
x2c< x2.05
2 2
X Tabulated value is less then calculated value of X

x2c< x2.05
• Interpretation: The x2c is less than the x2.05, therefore, there is no significant
difference between the observed answers given by employees and expected
answers. So, Hypothesis is Accepted.

The customer do not have different perception about the quality of the product supplied by
vendor or being procure it from the local market there equally satisfied so no preference is
given to any of thease two modes or other parameters on which this chi square is based at
5% level of significance.

Interpretation of Graph

63
The respondents are totally satisfied with the quality supplied by vendor as the number of
respondents is 25.

Interpretation of Graph 2

Majority of respondents think that vendors provide timely delivery.

Interpretation of Graph 3

Very few respondents say there is no penalty charged at the time of late delivery.

Interpretation of Graph 4

15 respondents of purchase department have an idea about internal audit whereas others
have no idea.

Interpretation of Graph 5

Out of 25 respondents 10 says that they rely on one vendor for few items whereas 15 says
they have a substitute in undesirable situation.

Interpretation of Graph 6:

They prefer the local market as the vendors provide timely delivery with less transportation
cost but according to the situation they also prefer outsiders.

Interpretation of Graph 7

HZL is not always responsible for the transportation charges for majority of items.
64
Interpretation of Graph 8
To scrutinize the best vendors from the list of vendors they conduct the survey for their
selection.

Interpretation of Graph 9
As without guarantee no one is willing to purchase goods therefore supplier has to give
guarantee.

Interpretation of Graph 10
Without knowing the financial soundness no one is willing to purchase the goods therefore
the company also regulates this policy to check the financial status.

Interpretation of Graph 11
Most of the respondents are satisfied with after sales service provided by the vendor.

Interpretation of Graph 12
Most of the respondents are ready to pursue new technology so most of them are in favor
to adopt it.

Interpretation of Graph 13
19 of the respondents are in favor of vendor rating whereas 6 of them are not in its favour.

Interpretation of Graph 14

65
Benchmarking helps the company to analyze its performance and most of the respondents
are in favor of benchmarking concepts.

Interpretation of Graph 15
References are must for building relationships therefore most of the vendors provides the
list of their customers.

Interpretation of Graph 16

Quality is utmost important, then time and then cost is given the second privilege.

Chapter 6
SWOT ANALYSIS

SWOT Analysis is a good management approach which helps manager to analysis the
Strength, Weakness, Opportunity & the Threats.

The Swot Analysis is conducted based on the direct and indirect experience that I have
undergone during the 45 Days of my industrial training at HZL, (Debari).

Among the main criteria studied is the ability of the training to meet the program objective.
The training atmosphere and environment, training task, its process and interaction
involved throughout the whole training period.
66
STRENGTH

1. We upgrade our technical concern of plant with the time like:

2. Energy Conservation System.
3. Exchange the technology with the foreign player.
4. Establishing new plant and machinery and using them with existing plant for better
production.
5. Expanding the process and mine production capacity {Chanderia and Dariba plant}.
6. Produce 85% of Indian Consumption.
7. Exports 33% of total production (2009-10 estimated).

WEAKNESS

1) Formal PSU culture.

2) Less effective supply chain management system.
3) Improper utilization of resources.
4) Conventional approach in market field.
5) Largely dependency on domestic market.
6) HR issues.
7) Unstructured training program.
8) Lack of facility.
9) Excess Manpower.

OPPURTUNITIES

1) Asian Market Demand of Zinc.

2) Developing Countries Demand.
3) Cost Reduction Programme.
4) World Wide place in Zinc Sector.

67
 5) Expansion plan for International Market.
6) Future career in Garments Industry.

THREATS

1) Conflict with Co-Workers.

2) Improper substitution in domestic market.
3) Current premium policies.
4) Domestic demand pattern.
5) Asian low cost zinc producers Ex. Chinese & Korean.
6) Globalization.
7) Government Policies.

Chapter 7
CONCLUSION

Today vendors are essential ingredient in the organization to fulfill the demands of various
departments of an organization. And vendor management is the concept which describes
the management of all activities, information, knowledge and financial resources associated
with the flow and transformation of goods and services up from the raw-materials ,suppliers,
components suppliers and other suppliers in such a way that the expectations of the end
users of the company are being met or surpassed.

68
 Effective supplier management is another cornerstone for a successful business
strategy. The way this policy is executed in organization, increasingly determines its
shareholder value. Companies like AT &T, Ford, General motors, Motorola, HZL, use
purchasing and supply strategies as an integrated part of their company policy. They are
proof of the huge savings and significant improvements in operational processes that can
be made through dedicated, effective supplier management.

The international competitive arena forces manufacturers to look continuously for

ways to improve their customer value. Product costs need to be maintained at a competitive
level. At the same time, they have to work continuously on product and process innovation.
Suppliers are able to, and should, contribute to both objectives.

Chapter 8
SUGGESTIONS AND LIMITATIONS

SUGESTIONS:

In term of the project, I draw some views about their process and working of Vendor
Management at Debari. Some of the suggestions for improvement could be:

69
  HZL should develop some standard approach to deal with each type of vendor.
Example; they may organize “Vendor Meeting Programme” at least once in a year.

 More internal audits should be performed at the vendor side to know its financial
reliability.

 The employees are more convenient with the manual process, so they should
organize more training Programme to make familiar the employees with
computerized process.

 They order the material in bulk and also order is placed as and when they need it. If
they follow JIT (Just-In-Time) approach, it would be beneficial for them.

LIMITATIONS:

Observation of numerous companies and institutions over many years has

demonstration that the purchasing process can be obstructed by the following situations:

• Supplier or brand specification: The use of particular brand or supplier’s

specification seriously limits the buyer’s commercial latitude with the supplier who
in most cases is well aware of the selection of his product. It may lead to situation
where the supplier selected can not meet the capacity and logistics requirements
of the company.

• Inadequate supplier selection: Selecting a supplier is one of most important

decision in the purchasing process, particularly if the product delivered required
many years of maintenance and service. Failure to check supplier’s reference
can produce very unpleasant surprise in shape of unexpected bankruptcy,
inability to meet quality requirements, unwillingness to keep up to warranty
obligation. it may become clear that the supplier, in order to land the contract, has
made promises about delivery times he cannot keep.

70
• Insufficient contracting expertise: If there are problems during or after delivery the
contract’s fine print comes into play. It can turn out that things thought to be
handled by the supplier, have to be paid for separately by the customer.
Misunderstanding about the handling of problems can be prevented by means of
a solid contract. Prevention is better than cure and editing of the contract is better
left to the buyer.

• Too much emphasis on price: Especially when buying capital equipment buying
decision need to be based upon total-cost-of-ownership rather than price only.
Many equipment manufacturers have adopted a sales strategy where they
charge a fairly low price for their equipment. However, there warranties and
services contracts required the customer to source spare parts and all
maintenance services from the original equipment manufacturer. If not done so
by the customer, the supplier ill not guaranty the functioning of the equipment.

• Administrative organization: Placing orders can also cause big problems.

Sometimes there are no clear procedures with regard to procurement or
authorization of orders, which can lead to random ordering by everybody in the
organization. The result is lots of extra work in inspection of deliveries and in
making invoices payable.

Chapter 9
APPENDIX

QUESTIONNAIRE

71
S.No. Questions Yes No Not
Answere
d
1. Are you satisfied with the quality supplied by vendor?

2. Are the existing vendors providing timely delivery?

3. Is any action has been taken at the time of late delivery (e.g.
Penalty)?

4. Is any kind of internal audit is performed at the vendor?

5. Does vendor provide services to other industries and if yes,

whether they provide a list of reference?

6. Do you rely on only one vendor for the same material?

7. How long has the vendor been involved in providing the services?

8. Are you preferred the local market vendors or outsiders?

9. Is there any vendor policy?

10. Are you always responsible for transportation charges in all

cases?

11. Do you conduct any survey for vendor selection?

12. Is supplier willing to provide any guarantee regarding design

specification and technical specification?

13. Are you checking the vendor’s financial reliability?

14. Are you satisfied with after sales service?

15. Is company interested in purchasing and pursuing new

technology?

16. Is any vendor rating being done?

72
 Chapter 10
BIBLIOGRAPHY

• Arjan J van Weele Purchasing and Supply Chain Management Analysis, Planning
and Practice.

• C.R.Kothari Research Methodology.

• www.google.com

• www.garter.com
73
• www.hzlindia.com

• 44th Annual report of “HZL”.

• Materials Management journal by IIMM.

• References from Economic Times, Business Line etc.

74