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FINAL YEAR INTERNSHIP

REPORT

PAK -ARAB REFINERY LIMITED

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SUPPLY CHAIN MANAGEMENT

NAME RAZA ALIID 15064DURATION 27TH JUNE’16 TO 5TH

AUGUST’16SUBMISSION 3RD OCTOBER 2016METHOD OPTION 2DUE DATE 20TH AUGUST 2016DELAYED BY 44 DAYS

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TABLE OF CONTENT

DEPARTMENTS 4 MATERIALS: 4 WAREHOUSE 7 PROCUREMENT 9WORKS DONE BY ME 1

0 PROJECT # 1 1

1 PROJECT # 2 1

2 PROJECT # 3 1

3THEORIES LEARNED IN ACADEMICS AND THEIR APPLICATIONS

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SUPPLY CHAIN MANAGEMENT 14

INTRODUCTION TO ERP-SAP 15

COMPUTER APPLICATION 1 16

NEW THEORIES LEARNED 16

INTEGRATED MANAGEMENT SYSTEM (IMS) 16

WAREHOUSE AUDITING SYSTEM 17

RECOMMENDATIONS 18

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DEARTMENTS

Department: MaterialsSections: 1-Warehouse (5weeks & 2 days)

2-Procurement (3 days)Supervisor’s Name: Mr.Tauqir AhmedDesignation Warehouse Group Head

MATERIALS

It should be noted that in PARCO, the term Materials Management is used instead of Supply chain Management. When asked about rational behind it, I came to know that; Supply Chain is a much broader term. It’s a complete circle or flow, which initiates from the product being produced from product being delivered to the end user. However, in

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PARCO, the oil isn’t produced or manufactured but it’s imported from foreign markets. The crude oil is then being refined to make several by-products. These by-products are then sold to various clients, who directly sell them to end users.

Supply Chain of any company is the backbone of its operational activities. Inefficiency or ineffectiveness leads to delays, halts & miscommunication which untimely become cause for huge losses. In PARCO, the importance of Materials Department isn’t only great but crucial too.

PARCO’s operational activities are spread nationwide. It has overall 10 stations including; pumping and terminal stations. Each group plays a pivotal role in achieving its objective of creating value and synchronizing supply with demand thus efficiency and effectiveness are ultimate goals of the department. Here’s the hierarchy of Materials Department;

The functions of material department have been classified into two categories namely, the primary functions and secondary functions.

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GROUPS

SECTIONS

DEPARTMENTMATERIALS(MANAGER)

WAREHOUSE/ SERVICES

(CHIEF ENGR)

WAREHOUSE(GROUP HEAD)

SERVICES(GROUP HEAD)

PROCUREMENT(CHIEF ENGR)

FOREIGN(GROUP HEAD)

LOCAL(GROUP HEAD)

These functions assist in meeting the objectives of materials department as well as corporate aims.

Primary Objectives;

1. Low Prices: If materials department succeeds in reducing the price of items it buys, it contributes in not only reducing the operating cost but also in enhancing the profits.

2. Lower Inventories: By keeping inventories low in relation to sales, it ensures that less capital is tied up in inventories. This increases the efficiency with which the capital of the company is utilized resulting in higher return on investment. Storage and carrying costs are also lower.

3. Reduction in Real Cost: Efficient and economical handling of materials and storage lowers the acquisition and possession cost resulting in the reduction in the real cost.

4. Regular Supply: Continuity of supply of materials is essential for eliminating the disruption in the refining process. In the absence of regular supply of materials, refining costs go up.

5. Procurement of Quality Materials: Materials department is responsible for ensuring quality of materials from outside suppliers. Therefore, quality becomes the single most objective in procurement of materials.

6. Efficient handling of Materials: The effective material control techniques help the efficient handling of materials resulting in the lowering of production cost.

7. Enhancement of firm’s goodwill: Good relations with the suppliers of materials enhance the company’s standing in the society as well as in the business community.

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8. Locating and developing future Executives: Materials manager must devote special effort to locate men at lower position who can take up the executive posts in future. It helps in developing talented personnel who are ready to undertake future responsibilities of the business relating to materials management.

Secondary Objectives;

1. New Developments: The staff of the materials department deals regularly with the suppliers responsible for new developments in material handling. These developments can be successfully applied in material handling and management.

2. Standardization: Standardization of materials is greatly helpful in controlling the material management process. With regular stock-taking, the non-standardized items can be rejected and standard components may be brought into product designs to reduce the cost of production. It is further helpful in promoting the standardization with suppliers.

3. Co-operation with other departments: Successful management of materials department contributes to the success of every other department in the organization. At the same time the success of materials department depends on how successful it is in getting the co-operation of the staff of the other departments.

WAREHOUSE

I was assigned to warehouse group, where I spent 5 weeks & 2 days under mentorship of Mr.Tauqir Ahmed, who is also in charge of PS 1 warehouse group.

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As mentioned above, PARCO has overall 10 stations & each station has its own warehouse & Incharge. Among these stations, some are pumping; some are terminal & some stations act both way.

Terminal stations also includes WOTS (white oil terminal stations), which are specifically designed for PAPCO operations. The company’s sole refinery plant is located in Mehmodt Kot (Punjab). Following is the list of stations with its location;

PPUMPING STATIONSPLANT LOCATION

PS-1 KORANGIPS-2 BUBAK

PS-3/WOTS-ll SHIKARPURPS-4 FAZILPUR

PS-5/TS-2/WOTS-lll MEHMOOD KOTPS-6 KOT BAHADUR SHAHPS-7 FAISALABAD

TERMINAL STATIONSPLANT LOCATION

TS-1 KEMARITS-2/WOTS-lll/PS-5 MEHMOOD KOT

TS-3/PS-7 FAISALABADTS-4 MACHIKE

WOTS-1 PORT QASIMWOTS-ll / PS-3 SHIKARPUR

In PS1, there are two warehouses; one is located in Up-Hill where chemical and big items are stacked and other one is in downhill (Main Warehouse), where standard and fast moving items are stored.

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During my internship period, I’ve learned following responsibilities lies with warehouse group;

1-Inventory cycle count: It basically checks and control quantity and conditions of inventory items. In most of the companies it’s auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specified day. In PARCO, they apply ABC analysis method. It’s an inventory categorization technique. ABC analysis divides an inventory into three categories; A item with very tight control and accurate records, B items with less tightly controlled and good records, and C items with the simplest controls possible and minimal records.

2-Capital, inventory & revenue items disposal: Provides guidelines for disposal of unserviceable inventory. During the course of time, some revenue & capital inventory item become unusable by the department, thus they are disposed off. The management of warehouse issue tender notice to invite people to bid for the disposed items. The party with highest bid then receives the dispose inventory items.

3-Issuance of material: Materials are issued from the Warehouse against material request by the end user. In warehouse there are various inventory items are stacked, belonging to various departments of the company. These items are stored in warehouse and the end user issues it when they need it. Thus, materials are issued by the warehouse management only against a material request. Only the warehouse people have the authority to issue material.

4-Receiving of materials: Materials are received in 2 stages in warehouse, first the receiving items goes through from inspection team, once it has been cleared, it enters into the second stage where warehouse issue good receipt and store the items.

5-Material handling: Establish safe condition and environment within warehouse boundaries. PARCO strongly comply with the Occupational Health and Safety Standards. Therefore the management of warehouse strongly focuses on the method of stacking material, using fork lifter & etc.

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PROCUREMENT

I spend my last three days of internship in procurement section, which has been divided into two groups; Local & Foreign.

Procurement is another important component of supply chain. The materials needed by any department of the company are procured by the procurement section. Thus their responsibility lies to get the best material item preferred by the department with great price.

In PARCO for every material, company has pre-approved vendors, to whom they contact for procurement. The end user issue material requisition to the procurement section, the desired item may be purchased from; domestic or foreign market depending on the availability, quality and price of the product.

Afterwards; procurement section contact the pre-approved vendors for their price of the require material. Once the price quotation list is received; it’s forwarded to the end user for technical evaluation. In case of acceptance, procurement section too evaluates the list technically and commercially. After all the formalities, procurement section issue purchase order to the elected vendor.

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WORKS DONE BY ME :

During my internship tenure, I was assigned with 3 projects

1- Inventory Analysis with respect of Material aging and zero & onetime consumption.2- Commodity holder in SAP for PARCO inventory item.3- Selection of New Safety Signs for Warehouse Project # 1- Inventory analysis with respect to material aging & zero/onetime consumption.

An excel sheet of material requirement planning list was handed to me. It consisted of 4,611 material items of different departments with their respective sections.

No company wants to stack unconsumed material for indefinite time. It not only covers unnecessary space but create huge cost for the company when they are proposed via SAP. Therefore the purpose of the project was to extract the procurement value of those proposed materials which consumption frequency have been either none or once in past four years. So that the cost of the idle materials can be highlighted.

There is overall 4,611 material items stacked in different warehouses of PARCO. The consumption frequency of each item varies significantly, thus company has maintained a rationale of minimum and maximum

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inventory level in SAP. Once the material reaches to its minimum or below level point, SAP automatically proposes the item in the system for replenishment. Therefore while summarizing the data, ultimate focus has been laid towards proposed items. Whole data of 4,611 material items was trimmed to 1,869 proposed items. These items were then distributed to their respective departments with their estimated procurement. More focus has been given towards those proposed items, which have never been consumed or once in past 4 years. Therefore it’s vital to show the estimated procurement value of these materials.

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Project # 2 - Commodity holder in sap for PARCO inventory item.

In another project, commodity holder excel sheet was provided with 3,470 material item in it. Out of these 3,470 materials, many were unlabeled items, who were not classified into departments and sections. Moreover, their material department code was also not listed.

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Data classification is pivotal for every system, its helps to analyze the data easily and accurately. Relevant issues can be addressed to relevant departments. The main objective of this project was to classify the data into different department/section and label their MRP department code. As this data was generated from SAP, which had no such classification, thus it had to be done manually on excel sheet. Approximately, 3,470 materials items needed to be re-classified and out of these 1700 items were blanks. They had no department, section & MRP department code written in their column. With the assistance

from Sir Maqsood Ahmed, blank materials department and section were identified. Afterwards, all the 3,470 material were reclassified into departments, with their respective sections and MRP departmental code. Once the data was organized and classified, the data was summarized by computing the departmental percentages of the total material items.

Project # 3 - Safety signs for warehouses

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This was the first assignment of my internship. I was assigned the task to find new safety signs for the upper and downhill warehouses. It should comply with Environmental Management Systems (EMS), and Organizational Safety and Health Systems (OSHS) certifications. With excessive research, many safety signs were downloaded from internet, out of which 6 were selected;

1) DO NOT BLOCK FIRE EXIT

2) NO CLIMBING RACKING

3) SAFE MANUEL HANDLING

4) NO SMOKING

5) TURN-OFF CELL PHONES

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6) RESTRICTED AREA

THEORIES LEARNED IN ACADEMICS AND THEIR APPLICATION

Department: MaterialsSection: Warehouse (5weeks & 2 days) & Procurement (3 days)

Most of my internship time period was spent in warehouse. As warehouse is an integral part of supply chain, we studied generally about warehouse in supply chain management course.

SUPPLY CHAIN MANAGEMENT

1-FIFO/LIFO: These methods are used in managing inventory and financial matters. In PARCO, both of the methods are used. There is no general rule which inventory item should be sent. It actually depends on the end user who has demanded the inventory item. But in general both concepts are applied.

2-Usage of Pallets: Pallet is basically the structural foundation of a unit load which allows handling and storage efficiencies. Goods or shipping containers are often placed on a pallet secured with strapping, stretch wrap or shrink wrap and shipped.

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3-Forklift: A forklift is a powered industrial truck used to lift and move materials short distances.

4-Stock Keeping Unit: SKUs are identification numbers assigned to each of the products and their variants. SKUs can be combination of letters and numbers that you choose, just as long as the system is consistent and used for all the products in your inventory. In PARCO they’ve given numbers to the inventory items, which in ERP-SAP has been referred as material code.

5-Safety stock: It’s a level of extra stock that is maintained to mitigate risk of stock outs due to uncertainties in supply and demand. Adequate safety stock levels permit business operations to proceed according to their plans.

6- Reorder Point: ROP is the level of inventory which triggers an action to replenish that particular inventory stock.

7- MIN-MAX planning: Under this method company specify minimum and maximum inventory levels for the items. When the inventory level for an item drops below the minimum, software Inventory suggests a new requisition or job to bring the balance back up to the maximum.In above the 3 concepts, their applications basically lie with ER-SAP software. But it not has been generalized for all the inventory items. As per my completion of internship, PARCO had 4,611 inventory items in various warehouses, across Pakistan. Each inventory items has different safety point, min-max count and reorder. Whenever the inventory item reached to its designated point, ERP-SAP would automatically generate reorder point.

8- Holding costs: are the costs associated with storing inventory that remains unsold, and these costs are one component of total inventory costs, along with ordering costs and shortage costs. My primary projects actually dealt with this concept, as mention before. I’d

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to find out the holding cost of all the proposed items, which have never or been use once in four years.

INTROUCTION TO ERP-SAP

In order to increase efficiency and stream line the process, the company uses ERP-SAP software in PARCO. They shifted to this software in 2009 from MAXIMO due to its limitation. During my internship tenure, they allowed to me only once to use the ERP-SAP software. I worked on following sheets in ERP-SAP;

1-Warehouse Management System (WMS): Company uses this software to provide flexible, automated support in processing all goods movements and in managing stocks in your warehouse complex. The system supports scheduled and efficient processing of all logistics processes within your warehouse. This is one of the module of ERP-SAP.

2- Bill of Materials: BOM is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of each needed to manufacture an end product. It’s also part of master data.

3-Material Requirement Planning: The main function of material requirements planning is to guarantee material availability , that is, it is used to procure or produce the requirement quantities on time .This process involves the monitoring of stocks and, in particular, the automatic creation of procurement proposals for purchasing and production. In doing so, MRP tries to strike the best balance possible between optimizing the service level, minimizing costs and capital lockup.

COMPUTER APPLICATIONS 1

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1-Microsoft Excel: Excel still is the most prominent and pivot software used in many companies in storing the data and calculating figures. Not many companies use ERP systems, perhaps for their excessive cost and less skill workforce. Those companies who’ve spend cash and installed ERP systems, still need to feed several years of data in the system, which have been kept in excels sheets. In PARCO also, working Microsoft Excel sheets still continues. Even the project, which was given to me, the data was all in Excel sheets. Thus computer applications 1 course helped me in completion of my project in PARCO

NEW THEORIES LEARNED

INTEGRATED MANAGEMENT SYSTEMS (IMS) In PARCO, management has to strictly comply with Integrated Management Systems (IMS) rules and regulations thus warehouse & procurement sections are no excuse. IMS integrates all business components into one system to enable the achievement of its purpose by focusing on quality, safety and health. IMS consist of 3 certifications;

1-Qualititative Management System (QMS) ISO 9001- Collection of business process, focused on consistently meeting customer requirements and satisfaction.

2-Environmental Management System (EMS) ISO 14001- Systematic approach to handling environmental issues within an organization.

3-Occupational Health & Safety Assessment Specifications (OHSAS) BS OHSAS 18001- Under this system, the company

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needs to put procedures, policies and controls to achieve best working conditions for the employees of the company.

WAREHOUSE AUDITING SYSTEM:

As mentioned in warehouse heading, one of the responsibilities of Warehouse management is to physically count the inventory which is mandated by financial accounting rules.In PARCO, Cycle Counting tactic is used to count the inventory. It’s an inventory auditing procedure completed via ABC analysis, an inventory categorization technique. ABC analysis divides an inventory into three categories-:1-"A items" with very tight control and accurate records. 2-"B items" with less tightly controlled and good records3-"C items" with the simplest controls possible and minimal records.

Auditors

In PARCO, warehouse audit is done twice, one by internal auditors and second by external audit team. Therefore, physical counting of inventory is completed before 45 days of the financial year. Afterwards the management compiles all the relevant data to be presented to the audit teams.Audited teams have their own way of collecting data , they observe warehouse operations, interview employees and inspect warehouse records. Observation and personal interviews allow auditors to gather data relating to warehouse process, efficiency and adherence to safety compliance policies. A records inspection is conducted to check for instances of fraud, waste or abuse, calculate an inventory valuation

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and to get financial data to use in setting the next year’s warehouse budget. Auditors may reach out to suppliers and customers, using confirmation letters to validate transactions or surveys to measure levels of customer satisfaction.Once the warehouse inventory audit is complete, an audit evaluation identifies process or cost controls requiring modification, makes suggestions for improvements that can increase productivity and efficiency. They can also make suggestions on safety or quality standards.

RECOMMENDATIONS

1-Barcode sensors at each entry of warehouse doors for record of in/out of products to ensure no theft.2-More commitment towards ensuring adequate HSE policies for workers and the products.3-At least once in a month emergency drill for all the staff.4-Installation of CCTV cameras in the Warehouse.5-Sufficient safety measures must be taken to ensure safety of the workers during any natural disaster like Earthquake.6-There should be some sort of physical identification in order to differentiate between a Quarantine and Active Stock.7-ISO 28000 Supply Chain Management Security policy must be developed for safe and secure SCM.

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