procurement process guide v 5.0 - final compressed

PROCUREMENT PROCESS GUIDE (PPG) V 5.0 Version 5.0 Standards and Guidelines on Procurement Processes.

2015

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015

5th Edition Control Number: V 5.0 Revision Date: 25/08/2015 Prepared By: Mr. Vishal Asthana, Deputy General Manager, Process Systems and Tools Approved By: Mr. Ranjan Sachdeva, Chief Central Procurement Officer. Published for ACC Limited and Ambuja Cements Limited. For more information, contact your local procurement representative. 2015 India Procurement Organization

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 About the Procurement Process Guide (PPG) Introduced in 2009, Procurement Process Guide (PPG) in tendum with Holcim Policies (available at Holcim Hub), standardizes the procurement policies and procedures across India. It adds clarity and consistency to the way we buy. It has travelled a long journey since inception and is a cornerstone for unification of processes after the formation of Central Procurement Organization. The goal of process standardization is to efficiently manage procurement activities and to make the procurement freternity, more responsive and streamlined partners to ACC Ltd & ACL Limited. This guide makes things easier for the procurement department by acting as a refrence manul to purchasing decisions, and has helped the function in deliverying its the services efficiently since 2009. While the guide does not address all the Procure to Pay (P2P) process issues, it address most of them, critical to process standardization and efficiency.

PROCUREMENT PROCESS GUIDE (PPG) V 5.0 2015

Forward

26th August 2015

Dear Colleagues,

We have achieved a major milestone in the journey of Procurement Transformation at Indio by implementing the new Category Management Framework for India OpCo's. With this initiative, we also aimed at making a leaner and a more efficient One India Procurement Organization (IPO}, which resulted in formation of 5 Procurement Clusters which serves both ACC & ACL plants operational procurement requirements.

With the change in the organization structure, the underlying processes will undergo a change, more particularly, with respect to transactions flow and authorization profiles. Hence as per new structure, the new Delegation of Authority was announced and implemented from 23rd June, 2015.

It is imperative that the changed processes are well documented and understood by all concerned for its effective implementation across the organization.

We are extremely happy to release of the version V 5.0 of the Procurement Process Guide (PPG V 5.0), which covers the changes occurring due to organizational restructuring. It briefly details the new process flows, Delegation of Authority at /PO etc. and clearly demarcates the role & responsibilities of category managers and operational procurement teams in the changed scenario.

The compliance to the Procurement Process Guide is a must to ensure smooth transition into a new culture with transparent processes to be followed across the organization, in order to bring in value on the table.

We congratulate the entire India Procurement Team and wish them all the best in their continuing journey to complete the Procurement Transformation.

Bernard Terver Ajay Kapur CEO & MD, ACL

Harish Badami MD,ACC

-- --- -. ----- ----------- --------------------- --- -- ------ -- - -- -- -- - -- --------- -- -- -~-F>a9e 3


From CCPOs Desk

Dear Colleagues,

It is imperative to continuously improve our procurement processes and make it standard across ACC & ACL plants. This will not only bring in process control, but also pave way to transparency and efficient way of carrying out procurement activities.

In 2015, once again we have further sharpened and improved our processes along with changes in Organization structure in the following areas

New Delegation of Authority for IPO. E- auction guidelines Sustainable Procurement Supplier Code of Conduct New Procurement Organization

We are therefore releasing Procurement Process Guide V 5.0 for our internal reference. This will help all procurement as well as non-procurement persons to understand current practices and processes. It will also guide them in aligning within the organization.

We have come a long way from the first procurement process guide with numerous improvements and I am happy to inform that today we are at a very matured level of compliance with the guide and process standardization across locations.

I thank the procurement team and especially Business Process team to make this happen.

Make best use of this guide.

Wish you all the best.

Ranjan Sachdeva

August 21st, 2015


Table of Contents

1. How to Use This Guide. ................................................................................................................. 6

2. Procurement Policy ....................................................................................................................... 7

Scope ............................................................................................................................................... 7 Policy Principles ............................................................................................................................... 7

3. Sustainable Procurement ............................................................................................................ 10

4. Procurement Organization .......................................................................................................... 12

Holcim Category Management Framework ................................................................................... 13 Organizational design under Category Management Framework ................................................. 15 Organizational Structure of India Procurement Organization (IPO) .............................................. 18

5. Choosing Right Purchasing Channel ........................................................................................ 24

SAP Initiated Requisition ............................................................................................................... 24 Direct FI Invoice ............................................................................................................................. 25 One Time Vendor ........................................................................................................................... 26 Cash Purchase through Petty Cash ............................................................................................... 27

6. Purchasing Process Flowcharts ................................................................................................ 28

Operational Process for Stock / Recurrent / Bulk Material and Bags ............................................ 31 Operational Process for Stock / Recurrent / Spare Parts & Consumables .................................... 33

Operational Process for Stock/ Non-Recurrent / Goods ................................................................ 34 Operational Process for Non-Stock / Recurrent / Goods ............................................................... 35

Operational Process for Non- Stock / Recurrent Services ............................................................. 36 Operational Process for Non-Stock / Non-Recurrent Goods ......................................................... 37

Operational Process for Non - Recurrent / Services ...................................................................... 38 Operational Process of Capex Goods ........................................................................................... 42

Operational Process of Plant Capex Services ............................................................................... 43 Negotiation Process ....................................................................................................................... 44

Operational Process for Emergency Purchase ............................................................................. 46

E - Reverse Auction Process ......................................................................................................... 47 Supplier Performance Evaluation .................................................................................................. 52

Request For Quotation (RFQ) Policy ............................................................................................. 54 Related Party Transaction ............................................................................................................. 57

New Benefits and Savings Definitions .......................................................................................... 64 Approvals in Purchasing Process ................................................................................................. 65

7. Master Data ................................................................................................................................... 66

Material Master Data ...................................................................................................................... 66

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 Vendor Master Data ....................................................................................................................... 67

8. The Procure to Pay (P2P) Process ............................................................................................. 71

Purchase Requisitions ................................................................................................................... 71 Supplier Selection .......................................................................................................................... 72

PO Creation and Release .............................................................................................................. 73 Receiving ....................................................................................................................................... 75

Invoice verification .......................................................................................................................... 77 Write off Procedure ..................................................................................................................... 78

9. Supplier Relationship Management ........................................................................................... 79

Supplier Segmentation ................................................................................................................... 80 Supplier Qualification ..................................................................................................................... 82

Supplier Relationship and Development ........................................................................................ 83 SupplierCollaboration....................................................................................................................84AppendixI....85AppendixII......86


1. How to Use This Guide

This Guide is a reference to procedures for anyone requesting or approving the purchase of goods and services. It is a companion to training and a textbook for employees, designed to help user make purchasing decisions and avoid common mistakes.

There are four main sections of this Guide that present information from different points of view. These sections are:

Procurement Policies (Ch. 2 & 3) Choosing Right Purchasing Channels (Ch. 5) Purchasing Processes Flowcharts (Ch. 6) Procure to Pay (Ch. 8)

Chapter 2 and chapter 3 deal with the Procurement Policies in alignment with the global policy directives (available at Holcim Hub).

Chapter 4 provides an overview of how procurement is organized in line with the new global category structure

Chapter 5 deals with selecting the right "Purchasing Channels, a term used by procurement to describe different ways in which purchases can be made and recorded in SAP system. The section of this guide dealing with purchasing channels is designed to give user an overview of the differences between them, and help user understand the logic behind purchasing rules and guidelines.

Chapter 6, 7, & 9 describes the processes to request and make purchases and make changes to material and vendor master data. These processes are carefully developed to make sure that there is clear guideline for everyone. In these sections user can find out exactly how to get started with purchase or change master data, and find out what part of the process is user responsibility, what is done by procurement and how all the steps relate to one another.

Chapter 8 focuses on steps, from start to finish, involved in most purchases. The focus is on the detail of what is expected of everybody involved in the process, and on how the work of each department affects the whole process and its outcome. It includes the steps that are undertaken by procurement to make it clear what is a need from user, why it is required, and what procurement will deliver.


2. Procurement Policy At ACC Limited (ACC) & Ambuja Cements Limited (ACL), Procurement is defined as third-party sourcing activities at strategic and operational levels to ensure minimum Total Cost of Ownership (TCO) through the systematic process of deciding what, when, and how much to purchase, the acts of sourcing, purchasing, and the process of ensuring that what is required is received on time, and in the quantity & quality specified.

ACC & ACL integrates sustainable development into the procurement strategy, the day-to-day operations and the relationships with Suppliers. Sustainable procurement approach and expectations are communicated to all Suppliers through a Supplier Code of Conduct and we favor working with Suppliers that are committed to sustainable development.

2.1 Scope

The scope of the Procurement Policy covers all third parties spend of ACC Limited (ACC) & Ambuja Cements Limited (ACL) across all business segments. The procurement function at all levels of the ACC & ACL shall operate within the framework of this Procurement Policy. All payment terms special conditions (if any), delivery agreement etc. are an integral part of the procurement activity.

2.2 Policy Principles 2.2.1 Key Elements of the Policy

1. The practical implementation and the application of the key elements of the Procurement Policy are detailed in the Holcim Procurement Handbook (HPH) and Holcim Hub. The high level key elements are stated here.

2. Important elements of the Procurement Policy contributing to value creation for the Holcim Group are:

a. Exploitation of Holcim Group wide bundling potential: Holcim spend needs to be addressed at the appropriate level (local / regional / global) to obtain best conditions and performance from its suppliers.

b. Standardization of processes, products and services: This will enable the ACC & ACL to reduce process cost, as well as TCO for such products and services procured.

c. Management of the supplier base: ACC & ACL needs to carefully manage the performance of key suppliers while streamlining the number of non-strategic suppliers. Alternative suppliers shall be developed as a priority to ensure a balanced supply base and to ensure best possible TCO solutions.

d. Design and implementation of lean and efficient business processes: Aligned processes and systems will allow Procurement function to

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015address larger spend and manage key supplier relationships more efficiently.

e. Making best use of existing technology: SAP and other existing tools offer a wide range of functionalities, which shall be used extensively, based on proven best practices and aligned efficiency parameter across or within group companies, wherever possible.

f. Establishment and measurement of key performance indicators: Effectiveness of the procurement function must be measured and benchmarked across the Holcim Group and with other industries. These are clearly defined by Holcim and Procurement report performance at regular intervals by means of a Procurement Score Card.

2.2.2 General Principles The overall objective of the Procurement Function at Holcim is to achieve the best value for procured goods and services at the lowest TCO while collaborating closely with all other functions within the organization and with suppliers, and in doing so, the Procurement Function will be an active contributor to improving Operating Profit and creating added value for the Holcim Group. 2.2.3 Organization, Governance, and Code of Business Conduct

1. The Procurement Function is organized: a. On global and regional levels through Group Procurement. b. On local levels through a dedicated procurement organization

within ACC & ACL (at Head Office, Regional clusters and Plant) and working hand in hand with global and regional procurement.

2. Procurement in the Group is governed by: a. A Global Procurement Council that directs Group procurement

strategy and determines the appropriate level to source categories and process alignment

b. Three Regional Procurement Councils, which execute the Group procurement strategy by:

i. Directing and supporting the implementation of regional sourcing and process initiatives, including the allocation of technical / operations resources to support cross-functional and cross-regional teaming.

ii. Tracking and directing procurement performance of Group companies in their area of responsibility.

3. The Code of Business Conduct & Ethics issued by ACC & ACL management, sets the norms of behavior that will govern the work of all employees at ACC & ACL.

Procurement organizations must adhere to a set of business conduct principles. In Case, if an employee is uncertain of an interpretation, he/she is expected to discuss the matter with his/her manager/ superior:

a. Business Ethics for procurement in the areas of (refer Code of Business Conduct & Ethics issued by ACC & ACL management):

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015i. Courtesies ii. Conflict of Interest iii. Anti-Bribery and Corruption Directive (ABCD) iv. Fidelity and Secrecy Agreement v. Occupational Health and Safety (OH&S) vi. Corporate Social Responsibility (CSR) Directive.

b. Fair Competition: All procurement activities in the Group have to comply with the Fair Competition Directive (refer Holcim "FCD).

c. Sustainability in the Supply Chain: Holcim seeks to engage with suppliers who commit to their social responsibility; environment and Occupational Health, Safety, Human Rights, and Anti-Bribery & Corruption (ABC) (refer Holcim Supplier Code of Conduct SCC).

2.2.4 Category Management

1. The basis of all category management activities and benefit planning is the Total Spend Analysis. The implementation and proper usage of the Product Classification System (PCS) by ACC & ACL is a precondition to carry out this analysis.

2. Several Strategic Sourcing Options are available to achieve lowest TCO. It is the responsibility of the relevant category team and the concerned procurement organization to ensure that the most appropriate strategic sourcing option is selected to meet their requirements.

3. All 3rd party spend is under the responsibility of category teams. Initiatives / projects are negotiated based on thresholds limits by either the category teams (above threshold) or by local operational procurement teams (below threshold). An agreement with the selected supplier documents the conditions at which Group companies buy these goods and services. Goods and services covered by mandated global, regional or local agreements shall not be procured through alternative channels. The applicability of these agreements, and the commitments of Group companies, are determined and mandated by the Global and Regional Procurement Councils. Aforementioned mandates include the commitment of spend and/or volumes on behalf of each Group company.

4. Category Management is the main contributor to generate monetary and operational benefits. In order to ensure a competitive cost position for the Holcim Group, ACC & ACL carry out an annual Benefit Target Setting process based on annual category savings forecast and implementing Procurement strategies in line with Holcim Group strategy.

5. The ACC & ACL seeks to engage in structured and long term relationships with its key suppliers. This will be achieved through a systematic Supplier Relationship Management (SRM) process followed by performance measurements.

6. To improve the procurement performance of the ACC & ACL, and to benchmark internally and externally, a set of reporting and controlling tools are followed.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20153.0 Sustainable Procurement Sustainable Supply Chain, is the management of environmental, social and economic impacts, and the encouragement of good governance practices, throughout the lifecycles of goods and services.

- UN Global Compact 2010 Sustainable Development (SD) is integrated into our procurement strategy, all day to day operations, and in our relationships with suppliers. The company cares about the environment and communities around its sites and it is expected that products and services delivered by suppliers comply with this. All Holcim operating companies are required to identify, prevent and manage risks pertaining to OH&S, social responsibility and environment in their supply chain. Further, Holcim seeks to engage in long-term relationships with Suppliers that are committed to sustainable development. The sustainable procurement approach and expectations are communicated to all suppliers through a Supplier Code of Conduct (SCC) (refer Holcim Supplier Code of Conduct). The principles of Sustainable Development value creation, sustainable environmental performance, and corporate social responsibility are integral to the group companies business strategy. The approach to sustainable development extends through the full value chain, including how our suppliers work with its own supply base. Holcim group companies favor doing business with suppliers that are committed to sustainable development. Therefore, Group Procurement HTEC has developed a Supplier Code of Conduct to assist group companies in communicating these expectations to all suppliers. The Supplier Code of Conduct can be found on the global Hub.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 Under Sustainable Procurement initiatives, Holcim is committed to meeting high social, environmental, and OH&S standards; and we expect our Suppliers to do likewise. Suppliers must comply with local and national laws and regulations. Furthermore, we expect Suppliers to adhere to the following standards:

1. Occupational Health and Safety (OH&S). 2. Working Conditions 3. Freedom of Association and Non-retaliation 4. No Forced Labor 5. No Child Labor 6. No Discrimination 7. Environmental Regulatory Compliance 8. Management of Environmental Impacts 9. No Bribery and Corruption

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 4. Procurement Organization. As part of the Holcim Procurement Transformation, inorder to build world-class procurement skills and introduce best practice category sourcing capabilities, Category Management Framework is introduced. Based on nature of goods and services, spend, suply base etc; all the 592 product classes difined under Product Classification System (PCS) V 7.1, have been consolidated into 27 categories covering ALL Holcim 3rd party spend. These 27 categories have been grouped into clusters of 1 - 3 categories under 13 global category clusters. The 27 categories and 13 category clusters under which they fall are depicted in the figur on the right hand side

All Third Party

Spend

27 Categories

13 Category Clusters

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 4.1 Holcim Category Management Framework: Holcim Category Management is neither a Procurement approach, and nor a Corporate Function approach. It is rather a cross functional and cross regional framework which bringing together Procurement with all relevant functions at Corporate, Regional, and OpCo levels and provide a platform for 100% third party spend management from the strategy definition to local execution. This framework deliver value by leveraging;

Our groups size by pooling / bundling at global level. Utilizing the skills of cross-functional and cross-regional category teams, have

full empowerment and accountability for delivering results (category specialization).

Big picture approach, which enable to optimize supply chain and gives increased negotiation power to derive, lower Total Cost of Ownership (TCO) and efficiency in managing supplier relationships.

This framework has two basic elements at functional level.

Category Management at Global / Regional / Local level. Operational Procurement at local level

Where as Category management teams (at global / regional / local level) serves to provide a planned direction to the category by formulating sourcing strategy which has involvement of people from cross functional teams (procurement & non procurement), operational procurement team at local level is largely involved in execution of the strategy at tactical level. In order to ensure proper segmentation of responsibilities and workload, thresholds have been established. For local spend where there are not any contracts in place, these thresholds come into play. Where spend is above the thresholds, then responsibility for execution falls on to the local Category Manager / Sourcing Lead and the Category Management Team. Below the category threshold, initiatives execution is the responsibility of Operational Procurement. Threshold Values for Categories

Thresholds are to be used for local initiatives in the absence of already existing contracts (negotiated by a category team, visible in a published contract list)

Thresholds define the involvement of the Category Management Team represented by OpCo Category Managers and Sourcing Leads

Thresholds for Category Team involvement: 1. Threshold for all categories except logistics (sub category pooling). If

annual spend is < CHF 500 K for a specific equipment / material / service the purchase is done at the OpCo level by operational procurement.

2. For logistics the proposed threshold is: CHF 1,000,000 per tender / contract due to the special nature of this category.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 Key Considerations on Threshold:

In absence of a Global / Regional / Local contract, Category Manager at its own discretion can delegate procurement of any material / service, irrespective of the threshold limit, to operations procurement team.

Wherever there is an ongoing Initiative (be it local, regional or global), even if the Contract is not yet placed, threshold will not apply. In such cases, only the Initiative Owner can recommend the OpCo operation to buy so much quantity which is necessary for ongoing business until the initiative is fulfilled.

Thresholds limits are generic values for categorizing / segmenting the jobs, which can be independently done by operational procurement team (in the absence of a category directive), and the ones in which category manager is to be involved. It is on the discretion of category manager to initiate sourcing activities for such above or below threshold limit spend bundle or ask operational procurement to act upon it directly (being local or spot buying in nature).

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 4.2 Organizational design under Category Management Framework: In order to govern all the third party spend consistantly across the Holcim group, cross functional Global, Regional, and Local Category teams have been formed for each of the 13 categories. These category teams are fully empowered to define strategy and execute projects; and are accountable for delivering savings and performance by obtaining synergy from pooling volume and talent on the same table. OpCo (local) Operational Procurement teams execute the transactional and tactical tasks. 4.2.1 Structure of Global Category Team. Global Category Teams define the category strategy through aligned objectives and are led by a Global Category Manager. It is fully accountable globally for planning, forecasting, and delivering initiatives and savings. Each Global Category Team has members from the 3 largest spend OpCos (covering 70- 80% of the global category spend), as well as a Regional Category Manager and an Operations lead from each Procurement region. Additionally cross functional team members participate as required The Global Business Sponsor mentors the Global Category Manager and drives business alignment

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 4.2.2 Structure of Regional Category Team. Each Region uses the same cross functional and cross regional structure led by a Regional Category Manager who is fully accountable for implementing the projects, initiatives and savings as per category strategy in the region. Each Regional Category Team has members (OpCo Category Managers) from the 4 largest spend OpCos in the region covering 70-80% of the category spend. OpCos within the remainder 30-20% of the categorys spend are not expected to have an OpCo Category Manager for the category and are represented by another Opcos Category Manager, who acts as their sourcing lead.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20154.2.3 Responsibility and accountability of Category Management Team

4.3 Organizational Structure of India Procurement Organization (IPO).

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20154.3.1 Structure of Category Management Team at IPO.

4.3.2 Structure of Operational Procurement Team at IPO.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20154.3.3 Collaboration channel between Category Management Team, Operational Procurement and various other stakeholders: The Category Management structure combines two different communication paths into a single collaborative forum. Procurement gathers information through Buyers, involved in daily transactions, and Procurement Managers, up through Category Managers who collaborate and bring their own OpCo needs and data to the table. In parallel, the Operations Leads gather more technical information from the users and specifiers and bring this critical operational information to discussions of opportunity assessment and strategy definition. All strategies are ultimately approved by the Procurement Councils, where the inputs from both streams, as well as other business-critical information, are considered. On a daily basis, operations (via OpCo users and specifiers) liaise with buyers (mainly for transactional activities) and with Procurement Managers for tactical topics. The Regional OpCo Operation Lead develops his or her own operations network in each OpCo to communicate initiatives, collect needs, standardize specifications and design common policies.

Procurement Managers coordinate with the OpCo Category Manager and process the tactical requests coming from Operations and, when needed, with the Regional Operations Lead, to ensure their requests are in compliance with the Categorys guidelines and policies, and that specifications are understood and followed. Apart from this natural interaction between all parties involved in their everyday tasks, additional means of communication must be noted such as PITT, the category and project charters (addressed to key impacted stakeholders, procurement and non-procurement partners), Info Flash releases, etc.


4.3.4 Responsibility and accountability at IPO Split of roles and responsibility between the two functional elements of this framework are as below.

Cat

egor

y M

anag

emen

t

Category Managers are primarily responsible for Category Management. This includes working as a member of a global or regional category team, and representing the interests of his or her OpCo in the development of category strategy. The primary tasks associated are: - information and needs gathering.- opportunity assessment. - strategy definition and ensuring that strategy, projects, and initiatives are defined and executed.In addition to the strategic tasks mentioned above, the Category Managers will engage in local activities such as RFQ execution, negotiations, etc., where spend exceeds defined thresholds (i.e. category spend exceeds CHF 500k annually).

Ope

ratio

nal P

rocu

rem

ent

Operational Procurement is mainly responsible for day to day tactical and transactional activities as determined by strategy and local needs.Operational Procurement is responsible for providing support and complying with all local procurement policies and procedures. This includes the implementation of regional and global category projects, allocation of supplier volumes as described in the categorys strategy and transactional activities (such as Purchase Order issuance, monitoring delivery and quality, monitoring of invoices and payment).

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015Each category has a formal category charter that defines the strategy, establishes measurement criteria and assigns roles and responsibilities in the category structure. Members of Global Procurement Council sign Category Charters. The global implementation of the category strategy is governed by aligned individual project charters. Project charters mentions the OpCos included within it, explains business requirements, establishes measurement criteria, define RAPIDs, and set the planning for execution. Key stakeholders within OpCos sign Project Charters, when relevant for their OpCo. Once signed, the document is live. Depending on the category strategy, contracts are negotiated at global, regional or local level; however regardless of a Global or Regional Category Manager taking the lead in any negotiation, the signature and implementation of the contract with the supplier is done by the OpCo locally. It is therefore the responsibility of the OpCo to prepare, manage and properly archive each contract adhering to the category guidelines and the local legal regulations and framework in place. The key link between the operational and category management teams is Procurement Manager under the operational role. This role acts as the bridge between operations and category managers and must ensure that category managers are involved correctly. Regardless of thresholds, whenever there are local / regional / global contracts or preferred suppliers, the OpCo must adhere to them and should not act autonomously.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 4.3.5 Workload Segmentation at IPO: Work load distribution and segregation of roles and responsibility within IPO is demarcated in the below table. National Category Manager (NCM)

Category Support Group Operational Procurement

Develop the category strategy with the Global /Regional Category Team

- Demand planning

- Industry intelligence

- Vendor Prequalification

- Special initiatives

Execute sourcing for all OpCo's in scope (gather specifications and needs, prepare RFPs, negotiate and finalize commercial Terms and Conditions with vendors)

Handle major escalations which cannot be addressed at plant/ cluster/ HO Ops team level

Support NCM in category strategy formulation (Industry analysis, Vendor prequalification, special initiatives, etc.)

Support NCM in sourcing and negotiations

HO

Provide leadership to the Cluster and Plant procurement organization

Upload the contract in SAP, ready for execution

Handle P2P process for procurement at the HOs

Handle sourcing activities as mandated by Category Team

Handle escalations from Cluster and Plants

Clu

ster

Handle key P2P process steps like PO and scheduling for all spend pooled at the clusters

Upload the contract in SAP, for local contracts

Handle sourcing activities below a defined threshold

Handle escalations from Plants

Pla

nt

Coordinate local day-to-day operations, receipt, QC, stock monitoring, payment and compliance etc.

Handle sourcing activities like Vendor identification, negotiation, finalization, expedition, feedback, consolidation of requirement.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 5. Choosing the right Purchasing Channel A procurement channel is a unique combination of systems and processes through which goods and services are procured and paid for. When selecting the most suitable procurement channel, many variables must be considered, such as level of control required, IT tools available and suppliers e-readiness. This process has a significant influence on operational efficiency, internal controls, usage of IT platforms, realization of cost saving, and the way we relate internally and with our suppliers. Choosing the right purchasing channel also helps to reduce other undesirable issues such as:

Unnecessary distraction of management (e.g. handling invoices payment claims)

Category managers and buyers handling process issues instead of using that time for strategic sourcing and negotiations.

Additional resources needed to process invoices, do reconciliations and/or attend to suppliers queries.

Poor payment records, which leads to supply interruption and/or advance payment requests and/or tougher negotiations.

Stock out due to longer internal processes lead times. Avoidance of internal controls (e.g. spend fragmentation, maverick

purchasing). Low service level to internal customers. Reduced spend visibility and additional effort required for reporting.

Different types of purchases require different types of recording and control. Each channel has a different balance between ease of use, control, information storage, and other factors. There are several key elements in determining how a given good or service should be procured, but there are two major factors: whether the purchase requires a Purchase Order (PO) and whether the good or service requires a material or service ID. Before purchase, user should have a good idea of whether or not a PO is required and what should be the procurement channel. There are four channels:

1. SAP Initiated Requisition 2. Direct FI Invoice 3. One Time Vendor 4. Cash Purchase through Petty Cash

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015In SAP Initiated requisitions there are multiple processes, while other channels have only one process. A process is a series of steps describing how to buy a type of good or service. Table-1 describes if user need a PO (illustrative list not exhaustive). Table 1. Purchasing Processes:

Process Examples Is PO Required? Is Material or Service Code Required?

Bulk Material, Fuels, Bags. Coal, Slag, Gypsum etc. Yes Yes

Inventory Material/ MRO.

Refractory, Grinding Media, Motor etc. Yes Yes

Admin Supplies. Janitorial, Stationary etc. Yes No

Services. Consulting, Installation etc. Yes Partially, to the extent of available codified service master.

Capex Spares parts/ Wear parts / consumables (03 & 04)

Bearing, Steel etc. Yes Yes

Capex Equipment / Sub-assemblies

Stacker, VRM, Gear Box assembly etc. Yes No

Capex Engineering Services

Labor services, EPC, Fabrication etc. Yes

Partially, to the extent of available codified service master.

FI Invoices (As per direct invoicing policy)

Employee Payments, Legal fees, Association fees etc.

No No

Here is some basic information about each channel, followed by a summary for choosing the correct one. Please note that specific process associated with each channel is discussed in detail in Chapter 6. 5.1 SAP Initiated Requisition A SAP requisition is the default procurement channel for all purchases. Users should always consider this channel as the primary requisitioning tool unless the purchase meets the criteria specifying or allowing the usage of another procurement / payment channel. This channel encompasses processes, which are described in details in chapter 6. Raw materials, fuels, electricity, spare parts, consumable & wear parts maintenance services, direct charge materials usually falls in this category. 5.2 Direct FI Invoice SAP FI invoice is the procurement channel where process is initiated after a vendor sends an invoice that does not correspond to a purchase order. The invoices are

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015directly entered into SAP and parked by finance. Once the invoice has received all necessary approvals in accordance with the signing authority policy, the vendor is paid according to the vendor master payment term. This process is controlled and administered by finance and governed by the direct invoicing policy issued by CFO office. SAP FI invoice do not capture purchasing or payment data at the line item level. Information is captured only at the invoice document level for vendor, general ledger account, cost center, plant, profit center, etc. and should be used judiciously.

Examples: Government Levies & license fees. Employee Expanses. Various Tax payments. Stipend and Scholarships Demurrages.

5.3 One Time Vendor One time vendor is a standard SAP process where normal vendor master creation is not required but we get all payment details in system as normal vendor, and payment can be processed using banking channel.

Manual Requisitions for payment through one time vendor is initiated when such request is made as per approvals. Once approved as per the standard procedure, finance posts the entry and pays to the vendor. This process is controlled by finance, and governed by corporate finance controlling. Standard FRM/OH&S/ABCD etc. declaration applicable for normal vendor master creation will not apply to one time vendor. One time vendor transaction will be exception to the policy.

One time vendor helps us in reducing the number of vendor master records in system, specifically for the cases where we do not expect further transaction with same vendor.

One time vendor cannot be used for the transactions which requires PO to be created, or requires trail in the system such as for advance payment, TDS deduction, Deposits, related party transactions etc.

List of nature of transaction eligible for this process and its monetary limit per transaction is defined below to avoid misuse of one time vendor process.

S. No. Expenses covered under One Time Vendors Monetary limit per transaction (INR) 1 Advertisements in festivals, sponsorship and

souvenir Less than 30,000.00

2 Compensation paid to farmers Less than 1,00,000.00 3 Donations Less than 1,00,000.00 4 Land purchases payment to farmers At actual 5 Payment to nominees for deceased employees At actual

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20156 Reimbursement of interview candidates Less than 30,000.00 7 Settlement of some old court cases where in

vendor / employee code is not in system. At actual

8 Any other nature of expenses with approval of CFO

At actual

5.3.1 Process Flow for One Time Vendor payments:

1. Authorization for one time vendor processing is with central finance team.

2. Concern user department will submit one time vendor request with necessary details about vendor (name, address etc.) and the nature of transaction to concerned finance team at locations with an approval of unit head and finance in-charge.

3. One time vendor request related to advertisements in festivals, sponsorship and souvenir and Donations will require prior approval from secretarial department at HO.

4. Concern user department will be responsible to follow and comply with all applicable rules and directives like OH&S, ABCD etc.

5. Finance Team at location will send the details of one time vendor through e-mail in OTV Template along with necessary supporting & required approval to centralized accounting team for processing transaction.

6. Central accounting team will verify whether the requested vendor is a part of related party vendor list updated in SAP.

7. Final decision for processing the transaction through one time vendor will be with central accounting team.

8. Central finance team will account for the transaction as direct invoice based on detail received in template and will provide document number to local finance team to send the same for payment through APP.

9. By default, payment will be made through cheque. In case the payment is required to be made through DD, a specific mention of the same needs to be made while sending APP sheet. One time vendor cases will not be processed through electronic payment mode.

5.4 Cash Purchase through Petty cash A petty cash fund is a cash advance issued to a custodian who will be responsible for the security of the fund and the control of disbursements made from the fund. Petty cash is used as a purchasing channel at the places where the inherent costs and time required to process financial transactions is high with respect to value of payment and where a debit card /credit card is not available or when its usage is not appropriate /feasible. Every department head / manager has been given the authority to cash purchase for certain amount based on operational needs at different locations and subject to petty cash policy of the company. In addition to this, all department managers are given a certain amount of Petty Cash, which will be refilled after submitting the cash bill to the finance department.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6. Purchasing Process Flowchart This chapter covers the high-level procurement processes applicable to the different product / services categories. An efficient purchasing process starts with proper demand planning and ends with proper supplier performance evaluation.

To optimally support manufacturing function, forecasts for operational activities needs to be communicated to Procurement well in advance (1 year +).

Maintenance material / service consumption planning requirements, needs to be communicated at least 13 weeks in advance.

Production forecasting (consumption of fuels, raw materials, etc.) requirement should be communicated to Procurement well in advance (1 year +).

Procurement should be formally involved in demand planning / scheduling of other departments (e.g.: participating in plant shutdown plan meetings etc.).

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015Detailed Plant Risk Matrix along with stocking strategies are key elements of maintenance planning and demand management. This helps procurement in obtaining optimal demand and devising sourcing strategy. A procurement cycle may generally be divided into three segments, namely Strategic Category Management involving execution of strategic sourcing options in line with Holcim Category Framework, Operational Procurement Processes involving execution of category strategy, and Tactical Process calling for execution of add-on process to obtain control and add value for overall execution of procurement cycle.

Before we get into the detailed process flow charts of procurement processes, we need to properly classify products / services based upon the consumption and stocking requirements. The below mentioned process tree will help the user in selecting the appropriate process out of various possibilities. Further we have also mapped the unique procurement processes with 13 new category clusters for clarity.


Based upon above classification, each of the 9 procurement processes has been mapped in the following sections.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.1 Operational Process for Stock / Recurrent / Bulk Material and Bags.

Procurement of bulk material like Gypsum, Slag, Coal, Bauxite, Fly ash, Iron ore, Bags etc. should be processed through this process flow diagram. SAP Contracts / SA are being prepared at HO / Cluster for the bulk materials. Purchase order / Delivery Order (DO) with reference to the central / regional contract or SA and prices and the purchasing conditions are followed in the contract / SA. Amendment of contract / SA is subject to the change / renegotiation with the vendor. Quality of material will be verified by the user, and in case of deviations in quality from the ranges specified in contract, the same should be communicated through e-mail to the Concern category Manager / Operational Procurement Team for taking the necessary corrective action with the supplier. Further to this, for ACC, ACL & BCCI the following process is to be adopted.

1. No Purchase Requisition will be required for POs of bulk materials and bags (except AFR) purchased against contract.

2. Requirement of such bulk materials and packing bags are to be routed as

follows. a. Requirement generation by Production Manager/Marketing Head. b. Requirement approval by Director Plant / Plant Head / Unit Head /

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015Functional Head.

c. Requirement submission to operational procurement team at HO / Cluster and Plant Purchase Executive / concerned operational team at Cluster / HO, for monthly PO / DO creation and issuance of dispatch schedule to vendors.

Any change in requirement during a month shall also be routed in the same way.

3. Requirement shall be generated by Production Manager on or before the 25th

of every month for the next month. The dispatch schedule to vendors shall be issued by Procurement on or before 27th of every month.

4. The Purchase Order release strategy for bulk materials & packing sacks where

contract exists (created with reference to local / regional / central contracts) shall be for one level i.e. Deputy Head Operational Procurement (Vertical) / Deputy Cluster Head (Vertical).

5. Purchase Orders are to be created as per requirement and the open order

quantities should be reviewed and short closed appropriately. 6. This process shall be followed for the bulk materials / bags under 01, 02, & 07

material groups and handled at HO / Cluster with a long term contract.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.2 Operational Process for Stock / Recurrent / Spare Parts & Consumables.

Maintenance activity should be planned in at least 13 weeks in advance and last- minute exigencies should be avoided to give procurement enough time for procurement. Emergency order should be true emergencies and not rush orders due to lack of planning or insufficient communication. In order to leverage volume pooling opting for better negotiations, the consolidation of the requirement is done from all the plants wherever possible. Usually a contract is released from the HO as per category directive and operational procurement team makes the POs with reference to PR and contract. Such POs, if created with reference to a valid HO / Cluster contract will trigger one level of release strategy. All the 03 & 04 material group items are usually covered under this process.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.3 Operational Process for Stock/ Non-Recurrent / Goods.

This process is applicable for the Stock items and Non-recurrent and Capex in nature. Usually there are no sourcing contracts for these materials and procurement activities are initiated whenever the requirement comes. Hence planning at user end is crucial for delivering such goods on time. This category of goods usually includes critical parts / insurance spares such as girth gears, mill liners, raw mill body liners, big size bearings, special parts, wire ropes etc. and is purchased in 1 - 3 years time frame based upon the need under maintenance Capex and charged directly to the respective cost center. In case such material falls under the listed pooling items, same is to be reviewed by Category Manager at HO.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.4 Operational Process for Non-Stock / Recurrent / Goods.

The material which does not require any stock keeping activity falls under this category, like office items, tools, etc. If such items falls under direct invoicing policy issued by finance, than there is no need to route it through procurement process, and the invoice can be directly given to finance for invoice verification. Contract may be issued for some of the recurrent goods (wherever possible) regularly required.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.5 Operational Process for Non- Stock / Recurrent Services.

Some of Marketing and Administrative services, various AMCs issued at plants and offices, etc. fall under this category. Clarity on Scope of Work (SOW) at the user end is one of the critical criterions for quick and optimum delivery of the services. It may be noted that for all critical maintenance & engineering services, vendor safety pre-qualification should be done through standard OH&S process (under CSM Directive) by OH&S Team. In case of multiple PAN India Service Contracts are released and business is awarded to L2 or L3 vendor rather than L1 , then proper justification along with Category Managers approval should be maintained. Refer section 6.7 for more detailed guidelines on marketing services covered under this process.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.6 Operational Process for Non-Stock / Non-Recurrent Goods.

This process is applicable for those items under 05 categories that are to be directly charged to the cost center. Admin materials like office stationeries, tools, food & beverage etc. falls under this category. Procurement will follow RFQ cycle based on the value of the item. If such items falls under direct invoicing policy issued by finance, than there is no need to route it through procurement process, and the invoice can be directly given to finance for invoice verification. At HO, regional offices, and sales offices, where there is no facility of stores, requester makes the goods receipt in the system and keep a record of consumption.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.7 Operational Process for Non - Recurrent / Services

Service procurement of Non-Recurrent services follows the similar procedure, as for recurrent services. Maintenance services where no maintenance contract exists for the equipment, entertainment /welfare event service etc. falls under this category. Clearly defined on Scope of Work (SOW) is a prerequisite under this process for quick and optimum delivery of the services. It may be noted that for all non-recurrent critical services, vendor safety pre-qualification should be done through standard OH&S process (under CSM Directive) by OH&S Team. A brief procurement operating process for major Marketing Service procurement activities have been enlisted in the below table. The same needs to be followed as a Standard Operating Procedure (SOP).


S No.

Marketing Procurement Category

Description PR to delivery lead time.

Operating Process Approval of Requirement By

1 Tour

Retailer/ Dealer Trips including Logistics trips. (Domestic/ International tours)

60

1. User should provide approved tour calendar for the complete year latest by 28th Feb every year.2. Approved scope sheet (based on pre quote meet done along with Procurement & Marketing) should be received 60 days before the day of travel and accordingly release PR should be given to procurement for execution. Minimum two vendors for pre quote meet (as identified by NCM). This will help in obtaining the most competitive rates for hotel and air booking.3. Scope change should be avoided after rate finalization, however in exceptional cases, NCM can decide if the rate change should invite a retendering or negotiation with L1/L2 vendors so as to incorporate new scope.4. Based on the approved tour calendar and scope sheets, procurement will finalize rates and vendor so as to optimize the total spend and take the benefit of bulk booking in the lean period (July to Sept). Avoid peak periods Nov-Dec & April - June as tour cost is very high (in case of exceptions approval by CCO / CMO will be required). 5. In case of international travel, required documents (like passport etc.) should be available with user department at least 30 days before commencement of the tour. 6. In case of tour cancellation due to change in tour period/ deviation in number of PAX, RFQ will be refloated again and will require 60 more days to re-plan the tour.7. In any deviation or special case approval of DS/MH needs to be obtained, as this may have cost implications for the company. 8. Any cost incurred during the trip as out of pocket expense should be pre-conceived within the scope (max 5% of the total order value) and provision should be made in PR / PO accordingly. MH/DS approval will be required on actual bills submitted after the trip.9. In order to ensure fair assessment of vendor service level during the tour and compliance to the scope sheet, one person from procurement should accompany the tour as an observer, subject to the approval of CCPO and as a part of free of cost seat.10. The tour coordinator (companies representative nominated prior to the tour) will be solely responsible and empowered to take decisions pertaining to the minor changes to the scope and out of pocket expenditure. It will be his responsibility to take necessary approvals and keep these communications documented for future references and audit requirements.

DS/ MH/CMO


S No.




2 Events

Annual Dealer Conferences, Retailer meets, Builder meets, Product launches

90

1. User should provide approved event scope (based on pre quote meet along with Procurement & Marketing) sheet minimum 3 months before the event date. This will help in obtaining the most competitive rates. 2. Based on the approved scope, procurement will finalize rate and vendor (based on 2 or more quotation obtained from approved vendor list), so as to optimize the total spend and take benefit of advanced booking (any exception will require approval by CCO/CMO). 3. In case of any deviation in scope or special cases, approval of DS/MH needs to be obtained by end user, since this may have cost implications for the company. 4. Any cost incurred during the event as out of pocket expense should be pre-conceived within the scope (max 5% of the total order value) and provision should be made in PR / PO accordingly. MH/DS approval will be required on actual bills submitted after the event.5. In order to ensure fair assessment of vendor service level during the event and compliance to the scope, one person from procurement may accompany the event as observer, which is subject to approval from Head Operational Procurement (Services). 6. The event coordinator (nominated prior to the event) will be solely responsible and empowered to take decisions pertaining to the minor changes to the scope and out of pocket expenditure. It will be his responsibility to take necessary approvals and keep these communications documented for future references.

DS/ MH/CMO

3 Gold/ Silver Coins/ Vouchers 30

1. User should provide consolidated released PR along with required denominations (coins / bars / jewelry etc.) and delivery locations.2. Real time tendering with time slot of 1 hour to be given to bidders of Gold Price. Bullion metal pricing can be based on real time/ pre booking/ MCX /KITCO related index etc. Labor rate/ making charges etc. can be derived based on bidding process once or twice a year.3. Procurement's responsibility will end after PO release. Reconciliation / delivery scheduling etc. all other activities after the PO is released will be the responsibility of user.

CMO

4 White Goods Electronic Items for Dealer/ Retailers 45

1. User should provide the approved PR (considering the MRP from respective companies website) for non-obsolete products along with complete specifications and model numbers etc. 2. For OEM products best negotiated rates from Channel partners would suffice. Tendering not required in such cases.

DS/ MH/CMO

5 Lakshaya/ Aasman

Customer Loyalty Programs. White Goods & Gift Cards along with insurance and delivery.

60

1. Procurement will select the portal vendor for customer loyalty programs for uploading of selected items. 2. SMX team along with approved portal vendor will take care of the product selection and uploading of items. 3. Focus will be on providing wide range of choices and reach to all postal codes. Lowest cost may not be criteria for selection of uploading catalogues. Tendering not required.

DS/ MH/CMO


S No.




6 POP/ CSS Gifts

Caps, T-shirts, Key Chains, Tiff ins, Giveaways for Dealers/ Retailers

60

1. Product mela to be conducted region wise/ centrally in ACC/ ACL.2. Approved PR based on the approved items required from user side3. Final negotiated product catalogue will be published region wise.

DS/ MH

7 Outdoor media Flex/ Brand Signage (Hoardings)/ In shop branding

30

Approved PR for each activity on the basis of which RFQ can be floated by procurement DS/ MH

8 Branding Standees/ Shop Boards/ Power Shop

30 Approved PR for each activity on the basis of which RFQ can be floated by procurement. DS/ MH

9 Festival Gifts Diwali, Holi etc. 60 Approved PR for each activity on the basis of which RFQ can be floated by procurement. DS/ MH

10 Dairy/ Calendar

Yearly Dairy/ Calendar for dealers and internal employees

90

1. Approved specifications along with PR to be received by procurement for floating RFQ by 30th June of every year.2. Rate & vendor finalization to be done by 31st July. Pan India tendering to be done for combined requirement of ACC & ACL.3. Artwork to be provided by Corporate Communications latest by 31st August.4. Dealers names to be provided to the vendor latest by 10th September.5. Delivery expected by 1st week of December.

DS/ MH/CMO

11 Other Contracts (RO/ RMO)

Hotel, Taxi, Security & other Admin contracts

30 Approved PR for each activity on the basis of which RFQ can be floated by procurement.

12 Local area activities (Involvement of Local TC)

Local Advertisement like newspaper, exhibition, sponsorship, festive events, Wall/ Shop/ Impact wall/ trolley painting, etc.

30

Quotes to be called and vendor to be decided by marketing team at RO.

13 Emergency Purchase

Last minute requirements having delivery days less than PR to delivery lead time.

Approval of Head Operational Procurement (Service) up to 5 lacs and CCPO > 5 lacs

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.8 Operational Process of Capex Goods.

1. Based on the identified scope, CAPEX budget approval is obtained by user

department for creation of PR. In case of green field or new technology projects, if required, budgetary offers may be obtained by procurement in order to estimate the CAPEX budgetary amount.

2. Proper project budgeting and planning process should be in place before actual procurement activity starts.

3. Standard SAP PS functionalities should be used to implement operational procurement processes for Capex so as to ensure process efficiency and automatic internal controls.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015 6.9 Operational Process of Plant Capex Services.

Based on the identified scope, CAPEX budget approval is obtained by user department for creation of PR. In case of green field or new technology projects, if required, budgetary offers may be obtained by procurement in order to estimate the CAPEX budgetary amount. Based on CAPAX approval, user / project team shall create the SAP- PR along with tender documents and proper service specifications. With reference to the tender, RFQ shall be released by procurement (CMT & OPT) on the approved vendors or newly identified vendors. Offers are invited in two parts for such critical orders. Scrutiny and evaluation of technical Offers is done by user department and recommendations are given. After the receipt of technical & OH&S evaluation, and freezing of detailed Scope, T&Cs etc., revised offers may be obtained by procurement, if required. Then price offers are analyzed for scrutiny. Negotiation shall be carried out by team of procurement & / or technical personal. More over for erection and civil contracts, site in-charge may also be involved. The negotiations shall be as per approved Negotiation Process and Delegation of Authority. Approval is obtained based on the value as per the delegation of authority. SAP Contracts / PO are created by operational procurement team and released as per SAP released strategy. Orders / amendments are released in the system by OPT from time to time. Plant/ site person are responsible for receiving the Services and

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015preparing service entry sheet in SAP. After receiving the service bill verification is done and payments are released from site. Finally the contractor Performance evaluation is done by user and procurement. 6.10 Negotiation Process Negotiation is a process when both seller and buyer reach to achieve their value for money. Negotiation is a very important phase in the procurement process and results in achieving the benefits. It is about understand power and positions of play. A successful negotiation is one where both the parties feel that they have achieved satisfactory outcome and a good deal, that will stand the test of time. Ultimately the objective should be to reach an agreement that achieves our key wants, but not at the expense of more than what we want to give away (not just any agreement). Negotiation shall be conducted with all the bidders as per negotiation schedule. The vendors who could not participate physically should be asked to give their no regret price on mail. With the new Holcim Category Management Framework in place, the tender committee will cease to exist. There are some general guidelines to be followed during negotiations as per applicability and relevance. Negotiation process can be generally divided into 5 steps.

1. Understanding your Own Position. 2. Define Negotiation Options. 3. Understand other Partys Position. 4. Plan the Tactics. 5. Implement the Plan.

6.10.1 Understand your Own Position Negotiation is all about preparation and planning. We need to understand our basic requirement that needs to be met and key issues that we need to be resolved. Check if there is a prior experience or learning, and who were the key people involved. How quickly do you need to reach at an agreement (timeframe)? What can you afford to give away verses any position that you must maintain (concessions)? Ask yourself what you dont know, and what you need to do to find this out.

Step1: Study the Technical Offer Evaluation Report for completeness, i.e. changes

with respect to tender documents, scope supply / services, technical loading, performance guarantees and remedies for subnormal performance, liquidated damages, ranking of bidder with criteria etc. Refer back to user departments in case of correction and clarification.

Ensure proper and valid price offer in line with the final scope frozen by the technical team along with its price break up and other relevant technical details.

Check the possibility of volume pooling with other similar requirements.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015Step 2: Price Estimation Wherever, one to one comparison with the earlier purchases is not possible,

estimate the Price using historical data of earlier orders. Adjust the estimated prices for escalation using prevailing commodity price

indices, price escalation formulae etc. Factor in the general market information about order book status etc. of the

vendor. Step 3: Preparation of comparative statement as per the Format Comparative statement shall be prepared as a standardized chart. Price comparison shall take into consideration, the technical and commercial

loading factors, wherever applicable (Technical Loading Power, fuel consumption, efficiencies, life of components etc., Commercial Loading Payment terms, Taxes, Delivery cost )

Identify the differences with respect to technical details. 6.10.2 Define Negotiation Options.

Negotiation options can be defined based on 3 key aspects;

I. Most Desired Outcome (MDO). II. Best Alternative To a Negotiated Agreement (BATNA). III. Least Acceptable Agreement (LAA).

MDO is the most aggressive target for the negotiation. LAA is the bottom line that is least acceptable outcome. And BATNA is the course of actions pursued, if the negotiation options do not meet the LAA. This involves implementation of different solution to meet the requirement, finding a different source / alternative supplier / or insourcing, or even eliminating use / not buying /change requirement to fit other option.

6.10.3 Understanding Other Partys Position. Carry out supply market profiling, relative power & positioning, and SWOT analysis of the supplier to understand the levers. Gather the information by asking questions from supplier, its other customers, and from other public sources.

6.10.4 Plan the Tactics

Understanding the negotiation options will help you defining the tactics. Plan to what extent you would take hard adversarial approach or a soft collaborative approach. Think about outcomes versus relationships and the future ongoing effects.

6.10.5 Implement the Plan Prepare relevant question for the other party and think what the other party will ask and prepare your answers for that.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015Also expect that you may be faced with the unexpected, this could be a question, response or silence, or general behavior and attitude of the other party. In most negotiations, price should not be the only issue on the table. Think about what we can exchange with the supplier better payment terms, longer contract duration, wider scope, excess to in-house expert, etc. With this we shall be able to justify a higher-than-average price. Try to invoke a two way communication and a win-win situation for both the parties without losing your position. Arrive at target cost with the help of the historical data, price estimation, and best quotes, wherever possible.

Do not make your approach personal and take breaks when necessary. 6.11 Operational Process for Emergency PO Emergency purchase is done for materials / services for want of which production stops. In this purchase process, material / service from vendor is requested over phone / e- mail / fax by Operational Procurement team. Vendor supplies material or renders services based on the request. He also sends offer, challan (delivery note) / invoice along with the material / service. The material is required in emergency and immediately consumed; hence routine procurement process of competitive bidding is not followed. Contract validation in SAP is by passed for such PRs/POs created through emergency procedure. 6.11.1 Detailed Procedure of Emergency Purchase During emergency respective Functional Manager at various business units will request the procurement to procure material or service by creating an emergency PR with document type ZEPR for both ACC & ACL. Such emergency PRs are created manually by the user with Account assignment category as mandatory field (as the material will be directly consumed & would not go into inventory). Please note that the emergency PRs are to be created manually for both coded / non coded items and services. Here, the user has to select requisitioner as EMERGENCY only (except in case of Ambujanagar where it is EMERGENCY1 & EMERGENCY2). The procurement department will follow up with vendor for supply of material or service, and will create emergency PO with document type ZEP for both ACC & ACL. In-ward entry of the material may be recorded at Gate (through IGP module). The emergency purchase requisition & purchase order will be subjected to release as per Delegation of Authority (DoA) value slab. Formal goods receipt will be done by stores, and excise person will capture excise invoice & post cenvat as per standard practice. Accounts Payable will then do invoice verification based upon goods receipt as per normal practice.

Please Note that any material which is routed through weigh bridge interface (i.e. goods receipt is done automatically through weigh bridge interface) should not be procured on emergency basis.


6.12 E - Reverse Auction Process.

A reverse auction is a type of auction in which the roles of buyers and sellers are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain goods or services, and the price typically increases over time. In a reverse auction, sellers compete to obtain business, and prices typically decrease over time.

In business, the term most commonly refers for a specific type of auction process (also called procurement auction, e-auction, sourcing event, e-sourcing or e-reverse auction) used in industrial business-to-business procurement.

6.12.1 General guidelines for carrying out reverse auction.

These Guidelines are intended to educate and assist ACC / ACL employees and third parties with regards to e-Reverse Auction processes, awarding criteria, confidentiality requirements, and clearly states the binding nature of bids made at any e-Reverse Auction.

The aim of e-Reverse Auctions is to enable negotiations to be engaged in using a technology that allow a faster pricing process, a more objective way of selecting third parties, and ensures greater transparency of market prices. ACC / ACL and third parties are expected to follow the standards set forth in these guidelines, and to deal fairly with each other in e-reverse auction.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20156.12.1.1 Scope of e-Reverse Auction.

Successful deployment of e-Reverse Auctions is not limited to high volume commodities and services. E-Reverse Auction can be successfully used in complex spend categories with highly engineered specifications and with direct impact on the business operations. E-Reverse Auction has proved to be a successful enabler in the negotiation of direct and indirect goods and services also. It is therefore the aim of ACC / ACL to access the suitability of e-Reverse Auctions as a support mechanism in all final commercial negotiations and to conduct e-Reverse Auctions whenever feasible.

6.12.1.2 Initiation on Bid Process.

1. Lots: Only Third Parties who have been pre-qualified as meeting the required standards set forth by ACC / ACL for bidding, including the criterion of available capacity for the product at the necessary order volume and / or service quality, may participate in an e-Reverse Auction. In case, if the Third Parties are not able to meet the full demand, lots will be prepared of a small volume. Balance required quantity will be auctioned at a later stage (after 8 days).

2. Opening Price:

Opening price is the upper / ceiling price of the contract value fixed by ACC / ACL for the lot / item. Third Parties can bid only lower than the opening price in case of e-Reverse Auctions. (Bid price would be based on the total price arrived at multiplying specified quantities with unit rates and summing up for the entire requirement). Only pre-approved Third Parties will be allowed to participate in the e-Reverse Auction and their performance will be evaluated as per Holcim standards. This Opening Price will be pre-approved as per Delegation of Authority (DoA).

The opening price approval should be backed by following documents:

a. Working sheet showing summary of initial bids and average price, highest bid and the lowest bid.

b. Report of independent verification of prevailing prices for coal, steel etc. from authentic websites.

c. Approval note seeking approval of opening bid price based on above criterion. Recommendations from category manager would be required for high value transactions above the value slabs up to which they themselves can approve as per DoA.

3. Weightage / Loading Factor

This factor shall be incorporated by the System Administrator during the event. This factor is the effect of financial implication arising out of the deviation taken by the participating Third Parties in the Bid.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015For example, in the e-Reverse Auction of coal, if any Third Party is supplying coal having low GCV, a price loading will be added at the time of final approval.

4. Auction Types

ACC / ACL can conduct only Rank Base Auction where only rank of the particular participating Third Party is visible instead of price.

5. Auction Intimation.

Complete schedule of the e-Reverse Auction will be intimated through a system generated emails to the participating Third Parties. Flash messages between the event and at the end of the events can be generated whenever required.

6. Auction Timings.

The minimum duration of the auction will be 20 minutes with the provision of auto extension as per the auction rules to be decided by ACC / ACL while creating auction. The Bid Extension rules as decided and set before the start of event shall be governed after the expiry of the auction time.

In the event a participating Third Party is placing his bid in last x minute of the scheduled end time of the event, the event will get automatically extended for next y minutes for n number of times. X & y are decided by ACC / ACL during auction creation. The auction time will get automatically extended so as to allow other participating Third Parties to participate and give better offer to win the bid.

7. Bid Decrement.

Bid decrement is the minimum fixed amount or percentage by which, the next bid value can be decreased. However, ACC / ACL reserve the right to decide appropriate bid decrement factor during auction creation.

Participating Third Party should enter the next bid price considering the Bid Decrement, with reference to self-bid for Rank Auction and L1 bid with reference to Price Auction. However in no case would the system accept modification to a higher value.

8. Surrogate Bidding

Surrogate bidding is the bidding in which the vendor is not able to participate due to some reason and has authorized the administrator to bid on his behalf. Surrogate bidding is not allowed.

9. Price Break-up

All participating Third parties are required to submit the price break-up of the final bid price just after the event on to the formats / price break-up sheet.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 201510. Mistake Proofing

If by mistake any participating Third Party puts a wrong bid, then this bid will be deleted only on receipt of written communication from the same, within 5 minutes of placement of the bid to the system administrator.

6.12.1.3 Transparency & fairness

In order to maintain the transparency & fairness Level, ACC / ACL have currently tie-up with M/s. C1 India Pvt. Ltd. to conduct the e-Reverse Auction event. Different departments are assigned different user id and password for creating the auction and setting the basic rules, administrator is the only person who has the access to view the live auction.

The e-Reverse Auction will be conducted in the presence of system administrator and inside a closed room where internet connectivity is available. Any communication (only technical issues) must be from administrators mobile phone only. Contact details should be communicated to the supplier prior to the start of the auction.

No price negotiations should take place on an individual basis (with Third Parties who are not awarded the auctioned business) after the e-Reverse Auction should has been concluded, unless the commercial negotiation with the Third Party who has been awarded the business cannot be successfully concluded.

Head System, Process, & Tools or Head Reporting & Performance Management will be monitoring the auctions on random basis to check the independence and transparency of the e-auction process. All auction events to be published must be copied to the Head System, Process, & Tools or Head Reporting & Performance Management apart from the system administrator (auction controller who is part of the Business Process & Procurement Intelligence Team). Each auction should be witnessed by at least one person not related to the category.

Attendance register named as Auction Report will be maintained and required to be signed by each person entering and leaving the auction room and this register will be in custody of Head System, Process, & Tools or Head Reporting & Performance Management.

C1 India e-auction platform cannot be accessed at different work stations at a given point of time as there is no provision for multiple logins.

After the e-Reverse Auction event has been concluded, no price negotiation will take place on an individual basis with Third Parties who are not awarded the auctioned business, unless the commercial negotiation with the Third Party who has been awarded the business cannot be successfully concluded. The final purchase order should be backed up with the closing report of auction event directly generated from reverse auction platform.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 2015The sole purpose of e Auction is to reduce the price quoted by the physical bidding. The minimum number of physical bid is 03 and e bid is 02. In case of poor biding response, the e-auction should be cancelled or postponed. Procurement on the basis of single bid is acceptable only if final price is less than reserve price. In case of acute emergency due to business need, the procurement on the basis of single bid with same reserve price and final price is acceptable after subject approval of Head IPO/CCPO. However, such cases should be rare.

Once in a quarter, the category manager should review the auction events from receipt of physical bids till execution of POs by the selected vendors and perform an objective vendor assessment to track particularly the following:

1. Vendors intentionally quoting very high price in physical bids, which may result in ACC / ACL fixing higher base price.

2. Price gap between various physical bids to identify possible cartelization. 3. Price gaps between physical bids and final prices quoted by same vendors

during live auction to identify the instance of quoting unreasonably high prices in the physical bids.

4. Vendors agreed to supply particular quantity in e-auction and failing to fulfill the requirements during PO execution.

Recommendations should be made to Head IPO for blocking of such vendors in view of possible wrongdoings. These quarterly reports should be documented as a part of vendor assessment exercise.

6.12.2 Introduction of new vendors for e-auction

Particular reference should be made for the following cases:

1. Vendors who were blocked earlier. 2. Vendors who were rated below satisfactory during vendor assessment. 3. Approval process and levels before including the vendor in the list of

approved suppliers.

6.12.3 Expectations from Third Parties:

Third Parties are deemed to have accepted the auction rules on participation at the bid event. Participation in an e-reverse Auction event is by invitation from ACC / ACL. Any other Third Party does not automatically qualify for participation.

ACC / ACL will make every effort to make the e-Reverse Auction process transparent. However, the award decision by ACC / ACL would be final and binding on supplier. The following points must be complied by the Third Party.

1. They agree to non-disclosure of trade information regarding the purchase, identity of ACC / ACL, e-Reverse Auction process, technology details, documentation and bid details.

PROCUREMENTPROCESSGUIDE(PPG)V5.0 20152. They cannot change price or quantity or delivery terms (or any other terms

that impact the price) post the e-Reverse Auction event. 3. They need to furnish the item rate form within the stipulated time after the

event. 4. They cannot divulge either your bids or those of other Third Parties to any

other external party. 5. Technical and other non-commercial queries (not impacting price) can be

routed to the respective ACC / ACL contact personnel indicated in the RFQ. 6. Inability to bid due to telephone line glitch, internet response issues, software

or hardware hangs will not be responsibility of ACC / ACL.

6.12.4 Compliance & termination

The responsibility of any Third Party to comply with applicable regulations, standards and law remains with the Third Party. ACC / ACL shall evaluate Third Parties in respect of their commitment to the e-reverse Auction Guidelines and of their efforts to comply with them. In the vent of evident and persistent violations of ACC / ACLs principles in this context, the relationship with the Third Party in question shall be terminated.

6.13 Supplier Performance Evaluation. To meet the growing business requirement the company needs to sustain and improve the relationship with suppliers for uninterrupted supply of goods & services. The need to improve procurement spend through value added services from suppliers; and the growing complexity of the products, services and extended supply chain raises the importance of having an effective supplier performance evaluation system. It provides actual performance of suppliers in an evalua

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