Indian Railways (IR), the prime movers of the nation, has the distinction of being one of the largest railway systems in the world under a single management. For last 150 years, IR have played a vital role in the overall development of the country and national integration by connecting remotest corner, link places to people and has been moving essential materials in the time of emergency.

With its modest beginning in the year 1853, with just 34 kms, IR today has grown to a national network of 63122 route kms, moving on an average 1.42 million tones of freight and 13.6 millions of passengers per day (figure 1.1). IR has also absorbed advances in Railways technology in tune with the requirement of moving large volumes of freight and passenger traffic. Over since reorganization of its zonal Railways in 2003, IR now has 16 Zonal Railways including seven new zones and eight new divisions.

Indian Railways, which have a host of social obligations, needs to get a better deal from the Government in terms of increased budgetary support to meet the present resource crunch. It is an important catalyst to the growth of trade, industry and the economy as a whole, with immense potential for providing indirect employment. It has a dual role to play as a commercial organization as well as a vehicle for fulfilment of aspirations of the society at large.

1.2 Materials Management- A Background

Materials management is concerned with the materials requirement by the organization for their internal consumption or conversion to carry on with their manufacturing or servicing activities. Materials management was unknown subject till the late fifties. Today it is regarded as one of the most important areas of management, particularly the area where applications of modern tools and technique can give rich dividend in a short time. It is realised that greater efficiency in materials management is more important in today’s situation of rising prices, shortages; lower productivity etc. Over the last two to three decades, materials management, the world over has gained recognition as a science to be studied extensively and applied systematically to measure efficiency and viability of any industry. There is no dearth of cases where sick units are made viable merely by attending to the materials management in such units.

1.3 Materials Management on Indian Railways

An integrated concept of Materials Management already exists in Indian Railways. All Zonal Railways and Production Units have got separate department known as `Stores Department' for performing all the functions related to materials management. To balance various interests from an overall perspective, all interrelated functions such as materials planning, sourcing, procurement, receipts and inspection, storage, distribution, inventory control, disposal of inactive and scrap items and transportation have been entrusted to Controller of Stores at the helm of materials management function for coordination all the functions and  to exercise effective control. 

The Railway’s ultimate customers are interacting mainly with Commercial departments. All other departments are linked in a supporting matrix of customer- client relationships. As a part of this matrix, all departments are internal customers of materials management departments for their material requirements. The main objective of materials management department is to ensure uninterrupted supply of quality raw materials at minimum cost, minimize investment in inventories, purchasing cost, number of stock outs and obsolescence and to avoid losses due to deterioration of materials.

Indian Railways have 215 stocking depots, the main hubs of inventory holding, spread all over the Railways’ network stocking 2.8 lakhs components. Expenditure on purchase of materials during 2004-05 on Indian Railways needed for operation, maintenance and production, etc was 12967 crores, which included 32% stores for operation, repairs and maintenance, 5% stores for construction, 31% stores for manufacture of rolling stock and 32% on fuel. Zonal Railways and Production Units (PU) mostly procure the materials they need but depend on Railway Board for a few items. Certain purchases are reserved for procurement through Directorate General of Supply and Disposal (DGS&D). Of the 12967 crores worth stores procured in     2004-05, 65% was done by Zonal Railways & Pus, 29% by Railway Board and the balance 6% through DGS&D. On the indigenous development front, 97.33% of the total purchasing was from indigenous sources and balance 2.67% was through imports for certain components of its recently acquired high technology Diesel/Electric locomotives, coaches and sophisticated signal and telecommunication equipment not manufactured within the country.

1.4       Organizational Structure

Materials management department on Central Railway has its functioning at following three levels:

1. Headquarters level –Purchasing
2. Stores Depots – Warehousing management
3. Divisional stores organization- An interface between HQ and Division

1.4.1    Head-Quarters Level

The Head Quarters office is under the administrative control of. Controller of Stores (C.O.S) who is assisted by 3 Chief Material Managers (C.M.M)  and 9  Deputy Chief  Material  Managers (Dy. CMM) 4 Senior Scale and 10  Junior Scale / Group B’ officers. The HQ office deals with Purchase and Non-Purchase activities through respective sections so created for this purpose.

The Central Railways has its website on materials management for easy access of information by its users including suppliers, purchasers and the indenters. Pilot project on computerization of Materials Management functions on Central Railway is already implemented covering all the modules which has brought efficiency and transparency in purchasing.

1.4.1.1 Purchasing

Purchasing is described as the business activity directed to sourcing the materials supplies, equipments etc., required for the operations of the organizations. Purchasing is not same as buying which is merely the act of procuring the item at a price. Purchasing is a broader concept and is a managerial activity that includes planning and policy activities and conveys a wide range of related and complimentary activities. The Purchasing function has been centralized in H.Q by Direct purchases or through other agencies viz Railway Board and DGS&D. Office of Controller of Stores is organized in various purchase sections having 8 to 10 clerical staff dealing with a category of items of a particular trade group headed by office superintendent. Central Railways is following an Annual procurement system with interim Period of 11 months, buffer 1-3 months and Contract period of 12 months based on ABC categorization of items. Extra care is taken for procurement of Self-life items for which POs placed with staggered delivery of 6 months requirements at a time so as to reduce cost of obsolescence.

There are about 14000 stock items procured and stored on Central Railway annually as per the annual anticipated consumption (AAC) for repair and maintenance of Rolling Stocks.  The demands are generated in the form of estimate sheets as per the laid down time schedule during the year and each and every item is to be covered with Purchase order for materials availability. The purchase manager conducts the review of the performance of purchase sections under his control in terms of percentage of demands covered and how much are pending for coverage. Normally 90% to 95% coverage of demands is considered satisfactory and the Purchase managers review reasons of non-coverage of demands personally. Controller of stores also conducts review on coverage of demands at his level during the monthly Stores productivity meeting held in HQ office.

1.4.1.2 Stocking Policies

There are about 16000 stock items which have been allotted eight digit item code called price list number (PL NO) sufficient to identify the item e.g. PL No. 72142558 is for spanner double open. The first two digits of the PL NO represent the main group of stores to which the item belongs. The next two digits represent the subgroup on the principle of trade classification. The further three digits represent the serial number of the item. The last digit is called the check digit which is calculated by modulus 11 method.

To facilitate proper functioning of a store depot and to locate items without loss of time, items are stocked by adopting following two ways of codifications

 I)  Coding by nature of items- raw materials, tools, hardware and paints etc

II) Coding by end use- diesel loco spares, electric loco spares, C&W spares

Stock items are regularly required in nature and should have minimum 6 drawl in a year with annual usage value more than Rs. 50,000. Items valuing below this value are arranged within local purchase powers of the respective depot / divisional officer. It is the responsibility of materials management department to make adequate provision, procurement and storage of stock items for the nominated Stores Depots.

 In order to exercise control on inventories, Indian Railways have fixed following ideal inventory levels for A, B and C category of items:

‘A’ category items: less than 3 months annual usage value

‘B’ category items: less than 6 months annual usage value

‘C’ category items: less than 12 months annual usage value

1.4.1.3 Non-Purchase function

There are non-purchase sections dealing with various activities such as Tendering, budgeting, Inventory Control, Firm's Registration, confidential matters, Scrap disposal etc. which actually are the backbone of purchasing in the head quarter office.

One of the main objectives of the Inventory Control section has been to keep a watch on   the Inventory by generating various reports on items having higher levels of inventory and distributing to the depots for controlling the inventories. Budget section exercises control on the allotment of funds for various trade groups for release of purchase orders. A  cell  for  mobilization  &  disposal   of  scrap  and   unserviceable   Stores at  Head Quarter is also  functioning  with the objective of maximizing disposal of scrap to generate internal resources. The efficient functioning of all these sections is very much important as far as overall performance of HQ office is concerned.

1.4.2 Stores Depot –Inventory Warehouses

There are thousands of indentors spread over a large geographical area of Central Railway (CR). CR therefore, have planned locations of the various stores depots with care. Stores Depots have been located attached to the major workshops and known as attached Diesel loco shed stored depots, Electric loco shed stored depots and Carriage &Wagon Stores depots. General Stores Depot (GSD) stocks materials of general nature which are required by most of the indentors are situated at one or two convenient locations from where the supplies to the indentors can be effectively done.

To ensure timely and efficient maintenance of rolling stock and for other operational requirements, Central Railways has established Diesel loco and Electric loco sheds and workshop attached depots. The Depot Officers, answerable to the Controller of Stores for the efficient working of stores depot with respect to overall availability of safety, vital and general nature items and for the prompt service to the indentors in his territory, heads the Stores Depots. He is also responsible for prompt disposal of scrap available in the scrap yard and scarp rails lying alongside of the railway track. The depot officer is assisted by Asst. Depot Officers and other Senior Staff such as Depot Store Keepers (DSKs) in his work.

1.4.3 Divisional Stores Organization

The divisional stores organizations are headed by Divl COS in all 5 divisions. They are interface between the division and rest of the units of materials management department. They are required to coordinate with Controller of Stores to meet the material requirements of his Division in respect of centralized purchase done for the Division. On matters related to coordination at HQ office, they report to concerned CMM in the HQ Office. They have been delegated local purchase powers of Rs. 50,000 for purchasing the material of urgent nature. They are also empowered to sale scrap formed in small lot sizes not valuing Rs. 50,000. They are also responsible for conducting inspection on line for identifying scrap in the division. They are also ensuring timely distribution of consumables and stationary items to all Station Masters of the Division on quarterly basis.

2.0 Vendor Registration System

Central Railway maintains trade group wise a list of approved suppliers after verifying their credentials. All the firms seeking registration with CR should have sales turn over of Rs.20 lakhs during the previous year, Valid and current Income Tax Clearance Certificate, Banker’s report, Sales Tax registrations and in case of manufacturers, factory registration certificate. Firms already registered with NSIC should have Valid NSIC Registration Certificate and also to produce their registration with Zonal Railways in whose jurisdiction their workshop/factory is situated along with performance report from said Railways. Firms registered with ICF, RCF, CLW, DLW, RDSO or other Zonal Railways should produce valid registration Certificates from the concerned Zonal Railways or Production units or RDSO.

Main problems faced by Railways in sourcing of materials are:

1.     Inferior quality of supplies.

2.     Frequent failure in delivery commitment by vendors

3.     Lack of focused efforts in cutting and controlling cost of components.

4.     Lack of stable buyer-seller equation

5.     Unreliable supply chain logistics

6.     Lack of focused indigenous development.

7.     Lack of communication from vendor.

Hence, registration of firm as approved suppliers is done carefully / rigidly after assessing capacity cum capability of the firms. An application, in the prescribed  format for registration, is required to be submitted by the suppliers while furnishing information like annual turnover, infrastructure availability is solicited.

 Registration of supplier is done for the following category for monitory limits and trade groups based on their financial capacity, capability and available M & P with them.

The firms registered are exempted from payment of Security   Deposit and Earnest Money Deposit.  The registration period is initially for a period of 2 years and thereafter extended based on their performance. Annual Subscription charges towards weekly stores bulletin is Rs.2, 000.

Within the monetary limit prescribed above firm is not required to pay Security Deposit and Earnest Money Deposit. However, a higher value order can be considered provided firm satisfies the capacity cum capability and submits Security Deposit for the excess value as is done in case of unregistered firms. For registering to get  supply orders more Rs.25,000/- firm should invariably be a manufacturer or his authorized agent. The initial registration is given for one-year period and subsequently based on their performance it is renewed for a period of 3 years.

Railway also issues a developmental order to the extent of maximum 20% of tender quantity to the firms interested in developing the items and possess adequate infrastructure. Some of the benefits available to the developing firms are:

a)     No liquidated damages are charged

b)     Extension of delivery period is granted on liberal basis.

c)     Risk purchase can be waived if firm has made a sincere attempt to develop items.

d)     Price escalation may be considered due to increase in Sales Tax, Duty, raw material.

For the sake of convenience of development and purchase the items are divided into various ‘Vendor Trade Group’, a booklet for which is available. The vendors are advise to go through IRS conditions of contract and special terms & conditions applicable from time to time. These can be obtained from Secy. to COS or Senior Materials Manager (DII) Ph.022-22637210, Fax No.022 – 22634313.

Railway adopts following mode of renderings for procurement.

1.          Bulletin tender – A Bulletin is published every week for items required.

2.          Limited tender – Enquiries issues only to selective proven sources.

3.          Advertised tender – Advertised in leading National & Regional News Papers.

4.          PAC purchases i.e. Single Tender – Where only one source exists.

The details of Advertised tenders are also included in the weekly bulletin for the vide publicity.

Railway is open to the problems faced by the vendors and there is a continuous effort to improve systems. However, for the information of prospective vendors it is clarified that:

·       Numbers of disputes regarding interpretation of contract etc. are minimum on Railways, considering the number of contracts entered.

·       Payment is relatively fastest.

·       Transparency in procurement is always in sight.

DETAILS OF MAJOR VENDOR TRADE GROUPS