ROLE OF VENDOR PARTNERS IN LOGISTICS COST REDUCTION:

1. PROLOGUE
The purchase groups place the purchase orders on esteemed vendors through a well
laid out tendering procedure and guidelines provided under the company purchase
policy. The tendering procedure and purchase policy ensure economic and transparent
buying from the registered vendors in Indian or International market.
It will be imperative to focus that the total cost of procurement includes material cost
as well as logistics costs associated with it. The theme of successful economic buying
relates to both the vendor and customer with stress on mutual benefit. The reduction
in the cost of logistics is beneficial to both vendor as well as customer.
In case of import procurement government / statutes provide certain concessions in
duties levied for certain categories of imports. In case of BHEL, as their products
occupy the core sector i.e. power, these concessions become exceedingly important
for reduction of logistics costs.
BHEL s vendor partners play an important role in getting maximum benefit of the
provisions covered under Indian import trade control. This paper highlights the
important role of vendors towards reduction of logistics costs .

2. PROVISIONS UNDER IMPORT POLICY

The import trade policy provides the various duty benefits for different type of
physical export / deemed export and other power projects.
Duty free import of raw materials, components, assemblies, sub-assemblies from
foreign suppliers for physical export projects like Gas Turbines for Libya/ Iraq.

Duty free import of raw materials, components, assemblies, sub-assemblies from

foreign suppliers for deemed export projects i.e. the projects which are installed in

Electronic copy available at: http://ssrn.com/abstract=1698917

India but the customer order has been won against international competitive
biding(ICB) i.e. global competition like Koderma, Bhusaval, Durgapur,Simhadari
etc.

Import at concessional duty for power projects (Project Import-PI), order for which
has been received from state electricity boards / IPP on negotiated basis.

Import under power certificate.

Import of capital machines / equipment and spares at concessional duty under Export
Promotion Capital Goods scheme (EPCG).
Import of components at nil rate of duty for defence products under MoD Certificate.

3. PROCESS FOR AVAILING DUTY BENEFITS:

In all above cases of duty free / concessional duty imports the appropriate licenses
(DEEC/EPCG)/

Advance

authorization/Power

Certificate/Project

Import

essentiality certificate are to be received from the related, Government Authorities

/Electricity Board Authorities/Customers with Certified list of items of import.

These lists of items are to be got registered with custom authorities at Delhi or
Mumbai so that duty free/ concessional duty imports are permitted by them.

BHEL s vendor partners play an important role in expediting the customs

clearance, ensuring hassle-free custom clearance by providing expeditious and
correct documentation required for custom clearance.

4. CUSTOMS CLEARENCE PROCESS:

Electronic copy available at: http://ssrn.com/abstract=1698917

Once the material is dispatched by the Vendor from the international sea / airport, the
information about the dispatch is received by the concerned purchase Group and also
to Regional Operations Division Mumbai/Delhi as per the address given in Purchase
Order.
Based on the information received from suppliers, docket (DKT) is registered buy
ROD/Haridwar and documents are handed over to clearing House Agent

CHA for

taking-up Customs clearance.

Bill of Entry (BE) is filed keeping in view the Mode of assessment-MOA
(DEEC/EPCG/PI/PC etc.) on Custom EDI System and process of Custom clearance
starts.
The Custom official assesses this BE and, if found in order according to Custom
Laws, allows to be assessed. Thus, the amount of duty is finalized as per
MOA/Invoice/PO Terms (INCOTERMS) & the same is deposited to custom through
the designated Bank.

Then ADF is done and Delivery Order (DO) is taken from the Shipping Company by
producing the Original Bill of Lading (OBL). Then the

consignment is finally

examined by Custom Examiner and, if found in order, allows to take delivery of

consignment, At this stage, it is very important that the suitable transport is available
at the port to move the consignment out of Port and dispatch to Plant to avoid
demurrage at port.

5. CUSTOMS CLEARENCE PROCESS REQUIREMENTS:

An overview of customs Process Requirements will focus on areas /documents
where the proper documents/ Quick response from Vendor partners will help in
expeditious customs clearance and minimizing delays / demurrage and consequent
reduction in logistics cost.
5.1 Registration of Docket (DKT) by ROD:The documents required are:Copy of Bill of Lading BL (to identify the shipment)
Copy of INVOICE (to identify the details of items and value
Copy of PACKING LIST (to identify the details of Packings)

Original documents are required toward the end of custom clearance process as it is
MANDATORY as per custom Law.
5.2 Filing of Bill of Entry (BE) by designated Cargo Handling Agents (CHA) on
EDI System of Custom:CHA who have authorization from Custom Authorities for filling BE on their EDI
System. File the BE on EDI system feeding all details of consignment like

IGM

date, CHA , invoice value, Custom duty structure, type of License/ PI ( under which
concessional duty is being claimed )and the final assessed value of custom duty.
Accordingly, it goes to the designated Appraising Officer (AO) who scrutinizes the
BE . This is the area where delays occur and improper documents may result in the
objections by AO (and consequent delays) in respect of:Material Test Certificates MTC ( to ascertain chemical composition thereby
deciding upon correct Customs Tariff Head (CTH) in case of raw materials, as
Custom Duty is a function of CTH).

Catalogues/ Tech write up (to ascertain the type of item, thereby deciding upon
correct CTH, in case of finished parts, as custom duty is a function of CTH).

If not satisfied with the documentary evidence, then order is passed to physically
examine the item
Based on the physical verification & satisfaction of AO, the BE is passed under the said
CTH, else returned for amendment & to re-file the BE with correct CTH.

Subsequently, BE is amended by the CHA and filed on EDI system which is finally
passed by AO. The duty amount so assessed is deposited in the designated Bank and the
consignment is examined by Custom Examiner based on the FINAL CHECK ordered
by AO. Examiner can again ask documentary evidence in support of the authenticity of
the claim given in BE.
5.3 Taking Delivery Order:-

Based on Original BL (Which is released by the Bank after receiving necessary payment
from BHEL as per invoice) final Delivery Order (DO) is taken from shipping Company
who has been owner of consignment so far. More than one shipping Agency is sometime
involved if trans shipment has taken place enroute. In such case DO is also taken from
this Agency.
6. TRANSPORTATION TO PLANT/ SITE:-

Next important step is to organize the transport at Port JUST IN TIME to avoid
occurrence of any demurrage, which otherwise, Port authorities charge as ground rent..
For containerized consignments also container detention charges are levied,

For heavy consignments like Plates, Rotors, Casings these rents may run into lacs of
rupees, if not shifted from Port for a sizeable period. Therefore, allocation to transporters
in advance and making sure that the appropriate Vehicle is provided in time, play very
important part in avoiding the demurrage.

In case of small consignments, if possible, consolidation with other consignments is done

and transportation is organized. If it is not possible, then these are shifted to a godown
and stored there, for subsequent Transportations.
.
7. ROLE OF VENDOR PARTNERS:
Vendor partners can help BHEL in reducing the costs associated with above
logistics i.e.; Customs/Transport/Insurance by taking due care for documentation,
packing and appropriate advice for safe inland transportation.

Proper Sea worthy /Air worthy Packing/ Packaging to avoid transit damages and
consequent insurance processing and delays leading to huge production losses

Compliance with Indian/International Packing/Packaging Laws /statutes.

Proper communication of Package details / sizes so that a proper vehicle is selected

for inland transport there by minimizing transport cost; vendor partners may also
suggest type/size of vehicle required for inland transport.

Timely submission of correct invoice , packing list ,catalogue /technical write-up to

ROD Mumbai for expeditious customs clearance . The invoice description and PO
description of the items should match with the description stipulated in the list of
items annexed with DEEC /Advance Authorization (Import License), EPCG
License, PI List, PC list etc. . These documents should be made available to ROD
Mumbai , well before the arrival of the Ship/ air carrier at Mumbai port so as to
minimize the time taken in custom clearance and to avoid demurrage. The effort is
to deliver the material in plant / at site with minimum loss of time and help
maintaining the production schedules.