Operations Report-PAKARAB Fertilizers

Pakarab Fertilizers, Multan.

REPORTREPORT

OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT

ONON

PAKARAB FERTILIZERS LIMITEDPAKARAB FERTILIZERS LIMITED

AQEEL ANWAR

MBA-1(3rd Semester)

MB-08-70

[1]


FOREWORD

This report contains operations of Pakarab in detail as far as I could find out. I personally visited Pakarab, collected data from internet and

necessary documents providede to me by Pakarab officials; that heled me in completion of this report.

The report starts with a slight introduction to fertilizer industry and then Pakarab’s introduction is given, highlighting its salient features, facilities,

products and management. Afterwards a comprehensive detail of Pakarab’s inventory management, supplier management, forecasting

and production processes are given.The report concludes with my findings about pakarab’s flaws and some

of my recommendations to eliminate these flaws.I dedicate this report to my teacher Sir Hayat M. Awan who assisted me

throughout the semester in operation’s management course, and my fellows who were always there to help me out in ups and downs.

[2]


OUTLINE

Fertilizer industry in Pakistan Pakarab fertilizers Limited

o Company featureso Organizational structureo Management team

Production plant Operations strategy Operations competitive cycle Production process Inventory Accounting system Inventory Management System Forecasting Supplier relationship process Material/inventory Management Inventory review system Management policy SWOT Analysis Findings & Recommendations

[3]


FERTILIZER INDUSTRY IN PAKISTAN

Pakistan is an agricultural country where about 72% of the total population not only resides in

rural areas but also relies for its sustenance on agri-activities. This sector is contributing a lion's

share in the national economy. Most of the national economic target is dependent on the

performance of our agricultural sector- It contributes 24% to the total GDP. Raw Cotton,

Sugarcane and Wheat are major crops having economic importance. The fertilizer is an

important input, which boosts the agri-production. Unfortunately, it is used three times lower in

our country than that of the developed countries in the world. We are not still self sufficient in

producing our staple food grain, soil deterioration, nutrient mining. And there is insufficient and

inadequate use of fertilizer.

History of Industry

The first fertilizer plant in Pakistan was built in 1958 at Usta khail producing Ammonium Sulfate.

First Urea plant of the country was set up at Multan by WPIDC in 1962 where expansion took

place in 1973 and 1979. Then another plant was set up in 1968. These produce 750000 MT of

urea jointly. Then OH built its plant in November 1971 with 34500 MT capacity, which increase to

445000 MT in 1991. In 1981, NFC's Pak-Saudi fertilizer plant started production of 550000 MT

of urea and in 1982 Haripur Hazara station producing 96,000 MT Same year, FFC's Machigoth

570,000 ton capacity plant gave production which increased to 1,330,000 M.T in March1993.

PIDC (Pakistan Industrial Development Corporation)

In 1952 Pakistan industrial Development Corporation (PIDC) was established which has

improved the ratio of investment in public sector.

PAKARAB FERTILIZERS (PVT.) LIMITED

ESTABLISHMENT

It was 12th June, 1962 when a company named National Gas Fertilizers Factory was

established by Pakistan Industrial Development Corporation (PIDC) in Multan, with Ammonia

and Nitric Acid plants of 200 & l00 M.Tons per day respectively. Ammonium Nitrate & Urea are

the final products having daily production of 330 and 180 M Tons respectively. The plant was not

able to achieve the rated capacity and it was supplemented with an Ammonia unit in 1988, with

daily production of 60 M Tons of Ammonia. This unit was not also able to fulfill the guarantee

tests.

So after detailed investigations and discussions it was decided ultimately to extend the fertilizer

units by using some of the existing facilities in conjunction with a new Ammonia, Nitro-Phosphate

(NP) and Calcium Ammonium Nitrate (CAN) plants, so as to achieve the needed demand of

these fertilizers in the country.

[4]


In pursuance of the above mentioned decisions, a treaty was signed between Pakistan Industrial

Development Corporation (now NFC) and ADNOC (Abu Dhabi National Oil Company) on March

7, 1973 and an agreement was made on 1st November l973, to establish a new company

named PAKARAB FERTILIZERS (Pvt.) LTD. in the public sector, as a joint venture for the

expansion and modification of the old National Gas Fertilizers.

Pakarab Fertilizers Limited was established as protocol concluded and signed on the 15th

November 1972 by the Federal Government to further strengthen and develop internal ties

between Islamic Republic of Pakistan and the State of Abu-Dhabi to cooperate in the fields of

Petroleum industries and National resources for the mutual benefits.

COMPANY FEATURES

The company was incorporated on 12 November 1973 with total authorized capital of Rs 1000

Million Pakarab had equity share capital participation of Pakistan through NFC & Abu-Dhabi

through ADNOC in the ratio of 52% and 48% respectively, with a paid up capital of Rs 743.061

Million. The project was completed at a total cost of RS 2511.44 Million with a foreign exchange

of Rs 1292.25 Million .It is the largest project of its type in the country. It is the project producing

compound fertilizers such as Nitro-phosphate, Calcium Ammonium Nitrate & Urea.

PRIVATIZATION OF PAKARAB

On July 14, 2005 Pakarab Fertilizer was privatized at a cost of Rs14.125 billion

under privatization policy of Government of Pakistan, acquired by Reliance Exports

(Private) Limited under the umbrella of Fatima Group and Arif Habib Group. The

company has provided employment opportunities to more than 2000 persons, which

also includes indirect employment with contractors. In addition to above, establishment

of this fertilizer complex has resulted in economic activity in terms of fertilizers and

other factory related trading / supplies

PLANTS IN OPERATION

The plants that are working efficiently are: -

Urea Plant

Ammonia Plant

Nitro phosphate Plant

Nitric Acid Pant

Calcium Ammonium Nitrate Plant

Power House

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Along with the fertilizer’s plants, Pakarab has its own Powerhouse, which has the capacity to

produce 27 Mega Watts (Turbo Generators of 9 MW each) of electricity.

CHOICE OF LOCATION

Factors for the selection of location

The reason for its particular location selection were :

Near the grid station

Abundant supply of natural gas (which is the raw material for the fertilizer)

Close to main highway (transportation access)

Out of city due to pollution hazards

Easy safety and drainage

GENERAL INFORMATION

Registered Name:

Pakarab Fertilizers (private) limited.

Status:

A private limited company having only two partners.

Factory Location:

Pakarab Fertilizer, Khanewal Road Multan

Brand Name of Products

KISAN (Urea Notrophosphate Calcium Ammonium Nitrate)

Main Products.

Calcium Ammonium Nitrate.

Nitrophosphate

Urea

Intermediate products:

Ammonia

Nitric Acid

Nitric Acid Crystals.

Area Factory: 172 Acres

Housing colony: 130 Acres.

Plants Starting on

Power Plant June 24, 1978

Nitric Acid plant Sep11, 1978

Ammonia plant Sep 27, 1978

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Urea plant Oct 01,1978

CAN plant Nov 26,1978

NP pant Jan12, 1979

Capacities:

Ammonia Gas 313500 metric tons

Nitric Acid 441600 metric tons

CAN 450000 metric tons

Urea 2400 metric tons

Raw Material Requirements:

Natural Gas 52.5 M.cubic feet (per day)

Rock Phosphate 710 tons (per day)

Storage capacity:

N-P(unbagged) 30000 TONS

CAN (unbagged) 27000 TONS

Urea (bagged) 12000 tons

CAN (bagged) 5000 tons

Imported Rock 30000 tons

Bagging Facilities: 4500 tons per day

No. Of employees

Executives:151

Office workers: 181

Daily Wages workers: 4140

(According to the requirements)

Auditors: M/s Riaz Ahmed & Co.

Foreign Sources of Finance:

ADNOC

World Bank

Asian Development Bank

OPEC Special Fund

City Corporation International Bank

[7]


PRODUCT / ORGANIZATION LIFE CYCLE:In 1937 PFL was in introduction stage, it grew by the time and in 1986, when the

expanded Urea plant they were at growth stage. Now they are at maturity stage. Both in

terms of organization and products (CAN, NP, UREA)

ORGANIZATIONAL STRUCTURE

The board of directors has appointed a full time chairman and a managing director, who is

vested with adequate powers to manage the day to day affairs of the company on sound

commercial lines. The Managing Director as Chief Executive is assisted by divisional heads i.e.

General Manager (Mfg.), General Manager (Finance), and General Manager corporate &

commercial (Company Secretary) and General Manager (Engineering). The Managing Director

administers and is responsible for the efficient management and working of Plants.

There are four major Divisions

Manufacturing Division

Internal Audit Division

Finance Division

Corporate Affairs & Commercial Division (See organogram)

Under these divisions following departments are currently working

MANUFACTURING DIVISION

Safe Operation & Environment Department

Production (Plant and their relative storage areas)

Materials Department

Inspection Cell

Technical & Planning Department

Personnel & Industrial Relation Department

Security Department

General Administration Department

Procurement / commercial Department

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FINANCE DIVISION

Management system Department

Education Department

Finance Department

Accounts Department

Internal Audit and commercial divisions are not further divided into sections or

departments.

MANAGEMENT TEAM

<> HEAD OFFICE <> PLANT SITE

Chief Executive Officer (CEO) Director Operations / Acting Mr. Fawad Ahmad Mukhtar Mr. Muhammad Saleem Zafar

Chief Financial Officer Senior Production Manager Mr. Ejaz Hussain Khan Mr. A. Majid Tariq (F.C.A)

Advisor-Fertilizer Division Manager Training & LaboratoryMr. A. Majeed Zia Mr. Muhammad Abad Khan

General Manager Marketing General Manager (HR / Admin) Brig (Retd) Umair Ahmad Mr. Nadeem Tariq

Director Technical Senior Electrical & Instrument ManagerMr. Pervaiz Iqbal Mr. Nasir Butt

Senior Technical Services Manager

Mr. Muhammad Saleem Zafar

Maintenance Manager Mr. Muhammad Tariq Javed

PRODUCTION PLANTS CALCIUM AMMONIUM NITRATE (CAN) PLANT

Designed capacity of this plant is 1500 M. Tons per day Calcium Ammonium Nitrate having 26% Nitrogen contents and 1-2 % Potassium Sulphate as additional nutrient to stabilize the prills & fulfill the soil requirement. It is manufactured by mixing 75% molten Ammonium Nitrate and 25 % Calcium Carbonate in the mixing tank at 170 C. 550-700 M. Tons per day Ammonium Nitrate is produced directly by reacting Ammonia gas and 60% Nitric acid in the Neutralization Reactor. 1050 M. Tons per day Ammonium Nitrate is produced in the CN Section by reacting Calcium Nitrate solution with Ammonia and Carbon dioxide gases in the CN Reactors. 600 M. Tons per day Calcium Carbonate is also produced in the same CN Reactors. Calcium Ammonium Nitrate is hygroscopic by nature and absorbs moisture from the atmosphere therefore it can be used in the soil with out sufficient water. It contains 13% Nitrate Nitrogen which supplies nutrients immediately to the plants and rest 13% Ammonium Nitrogen gives food

[9]


slowly till ripe up of the crop. Process of the plant is designed by Hoescht whereas detail engineering is done by UHDE Germany. This plant is in production since 1979.

NITROPHOSPHATE (NP) PLANT The process was based on license from Stamicarbon, Holland, while detailed Engineering was made by Uhde, Germany. The plant was designed to produce 229.4 MTPD of P2O5 or 1015 MTPD of NP having 22.6% P2O5 with 300 on-stream days/annum. The plant could not produce NP product at its rated capacity both in terms of designed quality as well as quantity at the time of guarantees; Uhde was made to undertake modifications on the plant, which they performed through addition of 2-lines of Crystallizers making total six lines. Similarly 2 centrifuges were added to 4 existing ones and additional refrigeration capacity was provided. However, even after the modifications designed product quality could not be achieved. The plant consumes much higher energy level compared with design. In view of the fact that plant could not produce 22.6% P2O5, the specs were revised to 20% P2O5 and 22% Nitrogen (originally 22.6% each of Nitrogen and P2O5).

UREA PLANT

A new Urea unit of 280 MTPD capacity commenced production in April, 1986 based on Snamprogetti design. Old Urea unit, Evaporation unit and Prilling Tower were retained. The new plant has 330 operating days/annum. Urea unit is a trouble free unit. It has the highest production efficiency. The highest production achieved was 387 MTPD against design of 280 MTPD (38.2% higher). Last year a production capacity of 101,754 MT of Urea as compared to design of 92,420 MT/annum and was 10.12% higher in spite of gas load shedding (+ 13,619 M. Tons).

AMMONIA PLANT

Based on Kellogg process, steam reforming of the natural gas, the plant commenced production in November 1978. The plant had capacity of 910 MTPD, which was enhanced by 50 MTPD through addition of Purge Gas Recovery Unit in April, 1986. The plant is designed to operate 330-days per annum (initially 320-days/ annum prior to capacity increase. Present energy consumption at the plant is 9.6 G.Cal /MT of Ammonia (excluding non-productive gas), which was 9.464 G.Cal /MT of Ammonia during guarantee period

NITRIC ACID PLANTS:

There are two units (three lines) of Nitric Acid production. The old line has a capacity of 180 MTPD of 60% Nitric Acid strength. This line commenced production in 1963. Other two lines have a capacity of 600 MTPD of 60% Nitric Acid. These two lines commenced production in December, 1978. The old line was modified in 1986 when an additional Absorption Tower was added, which resulted in increase of Nitric Acid concentration to 60% strength and reduced pollution level i.e. NOx Emission from 4000-6000 mg/cubic meter to 800 mg/cubic meter. The plant is operated as and when required. The two new lines have on stream factor of 330 days (originally 320 days). The old line consumes 0.310 MT Ammonia/ton Nitric Acid (100% basis) while the new lines consume 0.290 MT Ammonia/ton of Nitric Acid (100% basis). Thus old unit of Nitric Acid consumes higher energy. Approximately 40% of total Ammonia produced is used to produce Nitric Acid.

UTILITIES PLANTS

The Utilities Plant supply's the following utilities required by the production plants of Pakarab. Steam by BORSIG boilers three with a capacity of 85 t/hr each and produces 40 bar

steam at 395 Celsius.

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Electric power by three turbo generators of BBC with a normal capacity of 7.6 MW/hr each and produces 6KV electric supply.

De mineralized water by three trains of 120 m3/hr flow and quality of <10 PPB silica water.

Raw water by deep wells as no surface water is available. Cooling water by three cooling towers with total capacity of 38000 m3/hr for total cooling

water need of the complex. Instrument Air and Plant Air by four air compressors. Nitrogen by cryogenic Nitrogen Making Plant made in China with a Capacity of 720

m3/hr and Nitrogen gas purity of 3 ppm Oxygen. Effluent treatment, Chromate Removal and Disposal

OPERATION STRATEGYDeveloping an operation strategy begins with a process called "Marketing Analysis' which

categorizes the firm's customer and identifies their needs. This analysis occurs in conjunction

with an analysis of external environment. Then firm formulates its corporate strategy, which

provides the framework of goals for entire organization. Through this strategic planning each

functional area is responsible for identifying ways to develop the capabilities it will need to

implement functional strategies and achieve corporate goals. This input along with the current

status and capability of each area is fed back into corporate strategy planning process to

indicate whether corporate strategy should be modified.

Operation strategy specifies how operation can help in implementing corporate strategy.

Continuous cross-functional interaction must occur in implementing operation strategy.

Operation strategy does not define the specific processes to be used or the specific resources to

organization, rather it identifies the nature of the operation that are required to accomplish the

goals of the organization.

There are two types of operating strategy.

Process focused strategy

Product focused strategy

Operation strategy in PAKARAB is product focused. It is producing standardized products. In this

strategy, equipment and work force are organized around the product.

This strategy fits high volume production of products.

Based on the positioning strategy. There are three manufacturing strategies:

Make to stock

Make to assemble

Make to order

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Product focus manufacturing firms follow 'make to stock' strategy in which firms hold items in

stock for immediate delivery. This strategy is feasible because most product focus firms produce

high volumes of products. Operation strategy for PAKARAB is product focused so based on this

strategy make to stock strategy is adopted. There is mass production in this organization so

'make to stock' is feasible.

OPERATION’S COMPETITIVE CYCLE

Inputs:

(1) MATERIALS:-

For production of “NP” Rock Phosphate is imported from Canada, Jordan and Morocco.

It comes first through by air in Karachi then from Karachi (through rail) to Peran Ghaib

and then to Multan Pakarab (through rail). Natural Gas, for the production Ammonia

NH3 comes direct from Sui-Northern pipeline. Average monthly Sui gas bill of Pakarab

is around 30 million PKR.

There is normally a contract with suppliers of 5 years or 10 years. Its

units of measurement are per 1000 Cubic meter and it is used in millions of cubic meter

in production plants.

In natural gas there is 95% methane, and rest of portion consists of

organe, ethane, ethene, and other impurities. They purify it and oxygen is separated

and thus CO2 and H2 gases are collected as a separate by-product,

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1) N + H2 NH3 (Ammonia)

Main product

2) CO2 + NH3 Urea

NH3 gives raw material to other plants.

3) NH3 HNO3 (Nitric Acid)

(60% concentration)

4) NH3 NOX gas (Nitric oxide)

For 1 metric ton of NP, 0.71 MT Rock Phosphate is required.

WORK FORCE:

In very start of Pakarab establishment people were given training but now there is a

basic Qualification standard. IT Institute gives the diplomas to new trainees. But now

Pakarab has very skilled and well trained labour they have skilled labour especially in

plants such as Urea, Ammonia, NP and CAN and they don’t have good skills in

instrumentation as when the people gain good training and experience they quit the

organization for better emolument. In Pakarab 3 shifts work at a time 1 shift = 8

hours

Total Labor force = 1200

Pakarab follows level-work force strategy i.e. there is no hiring or

firing, employee have stable career but there is no subcontracting but there is over time

incase if a worker, is on leave then one has to replace him.

Executives: 151

Office workers: 181

Daily Wages workers: 4140

MANAGERS :

Managerial positions are from 180-200.

LAND :

Total area of factory is 172 acres

Total area housing colony is 130 Acres.

EQUIPMENT AND FACILITIES:

Basic Equipment is turbine and compressors along with a number of complex and

expensive equipment. One of top management says if they want to expand their facility,

or their area of production they will select same type of area in which PFL is currently

located because of dominant location factors discussed later in the report.

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PRODUCTION PROCESS:

1- NITRO PHOSPHATE FERTILIZERS (NP):

Phosphate Rock imported from Jordan and Morocco and Nitric Acid produced

within Pakarab Fertilizers are the basic raw materials for NP Fertilizer

manufacture Phosphate rock containing 74% Tricalcium Phosphate is digested

with Nitric Acid in dissolving reactors. Phosphate Liquor obtained mainly contains

phosphoric acid, calcium nitrate and excess nitric acid. As high amount of

calcium nitrate in liquor is not required, 75% of same is eliminated by cooling to

0 degree Celsius in crystallizers and subsequent centrifuges and filters are

converted to Ammonium Nitrate and Calcium Carbonate at calcium Nitrate

conversion plant. NP Liquor from filter is mixed with Ammonium Nitrate solution,

neutralized with Ammonia, concentrated in evaporators and is prilled.

2- CALCIUM AMMONIUM NITRATE FERTILIZERS (CAN):

Ammonia vapors from NP plant are neutralized with Nitric Acid in reactor to form

90% Ammonium Nitrate Solution. Calcium Nitrate melt from Nitro-phosphate

plant is transformed to Ammonium Nitrate and precipitated Calcium Carbonate,

the two reaction products separated through vacuum filtration. Ammonium Nitrate

Liquor is then concentrated to 99.5% in falling film evaporators in Ammonium

Nitrate Conversion plant. Calcium ammonium nitrate slurry so produced is then

prilled and coated with suitable coating agent to avoid caking of the product.

3- UREA FERTILIZERS:

Ammonia and Carbon Dioxide from Ammonia plant are compressed and fed to

Urea Reactors at about 150 Kg/Cm2, forming 50% Urea and balance Ammonium

Carbonate which is later decomposed in series of decomposers yielding 70%

Urea Liquor which is then concentrated in evaporators and then fed to prilling

tower for prilled Urea.

4- AMMONIA:

Natural Gas, containing 92% methane and higher hydrocarbons is the basic raw

material for Ammonia manufacture. This feedstock is purified in Desulfurization

section, after which it is mixed with steam and cracked into stages in presence of

Nickel catalyst.

Air is added at the inlet to second stage to provide the required amount of

Nitrogen, for the production of Ammonia. Carbon Monoxide is converted into

Carbon dioxide and Hydrogen in Shift converters.

[14]


Carbon dioxide is removed by washing with hot Potassium Carbonate solution

and CO2 is recovered from Potassium Carbonate solution by reducing pressure

and heat. CO2 thus obtained, becomes available for the production of Urea

Fertilizer and consumption at Calcium Nitrate conversion plant.

Residual Carbon Oxides, being poisonous for Ammonia synthesis catalyst are

eliminated by conversion to methane in methanator. Purified synthesis gas is

compressed and fed to Ammonia converters. Synthesized Ammonia is recovered

by Chilling in Refrigeration section.

5- NITRIC ACID :

The plant comprise of three steams, the new two are capable of each producing

600 and third old steam is capable of producing 180 metric tones per day of

Nitric Acid.

Ammonia is vaporized, mixed with air and the mixed steam is passes over platinum

catalyst gauzes in converters at 900 degree Celsius forming Nitric Oxide and Nitrogen

Dioxide converted steam is cooled by steam generation and cooling water, and then fed

to absorption columns wherein water absorbs Nitrogen Dioxide, forming Nitric Acid (60

% concentrated).

INVENTORY ACCOUNTING SYSTEM

This system is run on monthly basis. It is a batch system. During the month store section in store

system file enters the data into a store file. Then at month end the file is being coped into the

inventory account system library further operations. The file is then converted into a format

acceptable by account. After converting the file into the account format different sub files being

generated from this file, meeting different requirements of the system.

After certain procedures file is maintained enough to generate reports it is an important system,

which helps to maintain not only the but also to evaluate this stock in terms of its value

INVENTORY MANAGEMENT SYSTEM

Inventory management system or store system is an on line system- The system is meant to

update the inventory of the organization and maintain records properly that help management to

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take decisions about the availability of items to keep the operations running smoothly

It has the following functions:-

1. Making file inquires

2. Entering item movement or corrections

3- Managing stocks

4. Maintaining files

5. Printing files

6. Working on orders

7. Running monthly management programs

8. Indenting inventory

INDENTING

Indent is a document that contains a request for the purchase of an inventory item. The

preparation of this document is called indenting.

Two types of indents are generated at Pakarab.

a) Demand item indent

b) Stock item indent

DEMAND ITEM INDENT

This type of indent is generated at the time of demand from the user. The user initiates the

request by filling in purchase requisition request form.

STOCK ITEM INDENT

This type of indent is generated when the stock on hand becomes equal to the order point The

specifications of the item are entered in the computer then a print program is run which gives the

printout of all stock indents.

FORECASTING SYSTEM

System is used to classify the items on the inventory list on the consumption and current stock

basis into A, B and C categories. Also the system forecast the new order point and order

quantity after reviewing the order points of all the items on inventory list: based on the lead time

and purchase period.

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CLASSIFCATION OF ITEMS ON CUNSUMPTION BASIS

A: Slow Moving Items

B: Normal-Moving Items

C: fast-moving Items

CAPACITIES FOR PRODUCTION

Nitric Acid (old plant) = 180 MTPD

Nitric Acid (new plant) = 1200 MTPD

Ammonia = 960 – 1000 MTPD

Ammonia Nitrate Crystals=on demand

CAPACITY CUSHION:

= {100% capacity} – {Utilization rate}

= Normally zero

Because plant utilizes its 100% peak capacity.

BOTTLENECK

No such bottleneck is there. Facility is utilizing its 100% capacity

SUPPLIER RELATIONSHIP PROCESS

Pakarab being a sizeable fertilizer-manufacturing unit having 45,000 items on its inventory list

established the department for maintaining four major procurements to keep the operations of

the organization running without any break. The purpose of any purchase is to have the goods at

right time, right price and right quality. So factors involved in any purchase are

1: Quality

2: Quantity

3: Time

4: Price

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For an organization such as PFL maintenance of department is of extremely importance

because unavailability of a minor item of low value can stop the production and result in loss of

millions.

The commercial department at Pakarab is involved in

1. Procurement of the material

2. Sale of the Mid Products(NH3, CO2,A-N Crystals)

Procedure for Local Purchase / foreign Purchase

Purchases are made either on cash payments or credit basis. For non-stock items, user fills the

purchase requisition request (Performa) which explains the specification at desired item and

recommended suppliers if any. Then this request is approved by authorized person and sent to

concerned store. Store checks if an item is available in their stock or not. If not then they send

the request to budgeting section which checks whether there is enough budget available to

purchase the item.

1) INDENT RECEIPT

Indent completes in all steps and duly approved by the competent authority to items other than

stock are received in procurement department by the dispatcher. Indent for stock items are

raised by Material Manager and need no approval from any body. Valid indents after requisition

is processed further.

The indents are scrutinized for being proprietary or non-proprietary. An indent is 'PROP' if the

'item required is supplied only by one vendor i.e. the vender is the only proprietor of that

particular item. If only one address is written on the indent, it means that it is a 'PROP' indent,

otherwise if 'ANY SUPPLIER' is written against the 'Supplier ADDRESS, this means that the item

is a 'NON-PROP' item.

For NON-PROP items the concerned clerk finds list of likely suppliers from SUPPLIER ADRESS

FILE."

2) ISSUANCE OF ENQUIRY:

For propriety items inquiries are issued to the propriety addresses, which are specified on the

indent. For items of Non-proprietary nature esquires are issued to local, foreign. Last date for

receipt of quotations and due date for opening of quotations are duly mentioned on the inquiries.

The Dispatcher of Department dispatches the inquiries to their respective destinations

3) EVALUATED QOUTATIONS FROM CONSUMERS

All quotations received against Prop and non-Prop inquiries are sent to the concerned consumer

with Comparative Statement and the relative file for its technical scrutiny. While recommending

placement of order the consumer is also required to advise the mode of dispatch for the

consignment i.e. if he wants shipment by sea or by air.

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4) REPLY FROM SUPPLIER W.R.T CLARIFICATION

The clarification from supplier can be of two types

Technical

Price negotiation

Such replies are received by the Manager (procurement).

If the supply is of technical nature, then the papers are sent to consumer. Else price Comparison

are made and the process is repeated.

5) AUTHORIZATION OF PURCHASE ORDER:

On the receipt of approval notes from the competent authority formal purchase orders are

prepared.

6) L.C. ESTABLLSHMENT

On the basis of documents given on the purchase orders import Licenses are obtained by the

Manager (Accounts). The LC opening bank dispatches original L/Cs to the Beneficiary bank. The

Account Department sends a copy of the L/C to Procurement Department. To ensure that the

consignment is dispatched before expiry of LC a reminder is issued to the supplier on a printed

form

7) SHIPPING INFORMATION FROM SUPPLIER

If any discrepancy is found in the shipping documents as a result of checking or pointed out by

the LC opening bank which cannot be accepted suppliers are approached by the Procurement

Department to rectify the discrepancy All air and sea consignments are cleared at Karachi. PFL

Clearing and Forwarding Cell arranges custom clearance on the basis of shipping documents,

import license, LC forwarded to them by PFL Accounts Department Multan.After custom

clearance the consignment are dispatched to Multan.

8) MATERIAL RECEIPT

After inspection and checking of the consignments a former Receiving Report is issued by the

Material Department a copy of which is also sent to Procurement Department. The copy of the

Receiving Report is compared with the purchase order and the shipping documents and if found

in conformity with them, the reference of MRR Number and date is recorded on the purchase

order and the indent register and the file is closed

SELECTION & CERTIFICATION OF SUPPLIER

Any person /firm can get him registered at PFL as a supplier subject to fulfilling the criteria. A

form for pre qualification of supplier is available and the supplier has to provide full information

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required in that. (See annexures). Then if it meets the demands of competent authorities .No fee

is there for registration approve PFL.

PAYMENT TO THE SUPPLIERS

On acceptance of material in the inspection warehouse MRR is produced. When the supplier

submits his Bill/invoice on MRR receipt, commercial dept along with the invoice issues a

memorandum to finance dept, for payment. The memo refers to the date and bill no. Amount

supplier name P.O no. and its date and MRR and any deduction to be made .The deductions

may be made as a %age of the total amount regarding

Damages

Late delivery

Retention amount

MATERIAL/INVENTORY MANAGEMENT

Responsibility of Material department is to maintain material’s stock levels which are present in

accordance with the ROP (reorder point) EOQ (economic order quantity) technique of the

inventory section.

Material department comprises of three main sections

1. Clearing and Forwarding Section

2. Inspection Ware House Section

3. Store Section

4. Inventory Management Section

CLEARING AND FORWARDING SECTION

The responsibility of this section is to collect the incoming material from the godown of the

transporters and to dispatch the rejected materiel back to supplier.

INSPECTION WAREHOUSE:

Material, which is received by the C & F section is then send to the inspection warehouse- this

section is responsible for the inspection of receiving material on account of physical count and

technical examination before being taken on charge of stores. After checking the quantitative

and qualitative aspects Inspection Release Note (IRN) and other related documents are

prepared and on the basis of certification the material are either handed over to the concerned

storekeeper or returned to supplier.

STORE SECTION

Procurement of material from foreign countries is a time consuming and expensive job. So

Pakarab has maintained a stock of essential spares of different machines; which are stored in

the warehouses or stores. For the Inventory handling there is separate store section that

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regulate inventory to provide smooth running operation. The main stores are:

Spare parts store

General stores

And zero area is allocated to the old plants such as Nitric Acid and NH3 filling etc.

Catalyst like rhodium, platinum etc. which are of very high value are kept near to the concerned

plant and are issued.

These are further divided into these stores:

INVENTORY MANAGEMENT SECTION

All these stores are online, manual bin card system is also used for inventory control. Proper

inventory control is very important because it provides the exact estimate of the future needs of a

particular item. It provides valuable information.Inventory is held so there should be minimum

chances to stock out. As discussed in the purchasing there are two types of item.

Stock item

Demand item

For demand item, consumer with his experience and consumption pattern tells the store

department when to buy and how much to buy what should be safety stock? Incase of stock

item: order point is determined by considering these factors:

Consumer's experience

Consumption pattern

Performance of equipment

Also suggestions given by the vendor of that item is also considered while deciding about

order point.

This order point is feeded in computer, when the inventory level reaches at order point the indent

is issued. In order to minimize inventory and proper management and control order points are

reviewed after six months, year or two.

SAFETY STOCK

Safety stock is kept for all items keeping in view:

Chances of stock out

Importance of the item

Lead time

Consumption pattern

BUFFER STOCK

In Pakarab buffer stock for intermediate product is also maintained for smooth running of

operations-For example:

Buffer stock of NH3 is maintained-

To avoid any disturbance in the production of Urea.

Sometimes Ammonia produced is not entirely utilized

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So it is stored There is capacity of storing 5000 tons of NH3 in Pakarab.

Min buffer level for foreign item is 40 weeks

Min buffer level for a local item is 12 weeks.

ABC ANALYSIS

Items are classified as:-

ITEM COST RANGE (In rupee)

A: 100,000 and above

B: 25,000 to 100,000

C: below 25000

A and B items represent 20% of inventory but 80% of total stock value- while C items represents

80% of inventory and 20% at total stock -value A and B are very costly items These items

include insurable. items which are very costly and so important that without them the whole

operation can be disturbed

INVENTORY REVIEW SYSTEM

Since the inventory system is computerized and all the stores are online there is continuous

review and inventory level is updated at each transaction.

INDENTING

Depending on the consumption nature of item indents are of two types

1. Demand indent

2. Store indent

A demand indent may arise by any department when items needed are not available in the store.

A store indent initiated by the store department for the stock items when the inventory reaches

the reorder level.

A stock indent shows the

Max level

Min level

Reorder level

Item description

Item index no

Last P.O no its date price per unit and quantity

Usage pattern of last 3years

By historical data the commercial departments have the convenience for new purchase.

LEAD TIME

For items procured within country lead-time is 3 months for manufacturing items.

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For ready-made items lead-time is 15 days.

The lead time may vary subject to the nature of the item e.g for goods procured from foreign

country, lead time is six months.

Daily Movement Report

As online system is adopted so an daily basis a daily movement report (DMR) is prepared

showing the items description and code which are issued and received by the department

Sale of mid productsCommercial department is also indulged in the sale of mid products (A-N Crystal NH3

and CO2 gas). Nitric acid is sold only to special customers sale is made on advanced payment s

by the customers the customers deposit cash / DD in the finance dept. on showing the slip filling

report is made and is send to the sale section of finance dept to make invoice so as to have gate

pass.

MANAGEMENT POLICY

Management policy means how the managers have established the atmosphere in the

organization. How the subordinates are working in the office. In Pakarab Fertilizers, the

management style is the mixture of different styles. On one side we can see the Management by

Objectives that the all work is done with the consent of workers. Al the targets and achievements

during the year are set with the collaboration of the staff members and workers, while on the

other hands' we see that the system is centralized. All the decisions are made at the top levels. If

we look towards the relationships between the management and workers we find them informal

up to some extent both the managers and workers work with very close to each other. The

relationships are free and frank. Each of them can express his interests and can discuss his

problems with each other and the other realizes them. The disputes are settled with the mutual

understandings and dealings.

As said earlier that there is centralization in Pakarab Fertilizers. The policies are made at the top

level of the management. Higher management also makes all future decisions. No doubt. The

policies are imposed in the organization but the resistance against the policies is very low. The

reason is that when the policies are framed at the top level, the all paper work is completed. All

those who will be effected by the policy are contacted and their opinion is received end then the

policy is made on the basis of these opinions. That's why, the resistance is very Low The

workers and staff members honor all the policies.

OUTCOMES OF MANAGEMENT POLICY

Following are the outcomes of management policy prevailing in Pakarab Fertilizers. These are

the- signs of its success. It also shows the trend of the managers towards effective

management.

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The outflow of workers is very low .The person, who joins the organization once almost

never leaves it.

The low degree of resistance is found against the policies of the management.

The working efficiency is also very high due to frankness and free relationship between

the management and workers.

The high production is also a yardstick showing the success of management policy

because with the poor management the workers are not satisfied and when the workers

are not satisfied; the production eve is also decreased.

There is a low rate of labor union and management clashes.

SWOT ANALYSIS

STRENGTHS

Broad range of main and mid products

Central location of plant

Broad production range

Monopoly in Calcium Ammonium Nitrate & Nitro Phosphate production Support from

Ministry

Experience in production and marketing of product

WEAKNESSES

Urea made by Pakarab is of more powdered form as compared to the urea made by FFC

Obsolete plant with high operating cost

Govt. compellations especially for the pricing policy

Monetary sensitiveness to foreign exchange exposure

Dependence on imported feed stock suppliers and special repair/maintenance

facilities

Environmental problem & proximity to urban area

Limitation in achieving CAN plant design capacity

Limitation in achieving NITROPHOSPHATE product quality, design specifications

Too much centralization effects timely decision making

Unsatisfactory Product quality of urea

No proper sales promotion

Placement and number of warehouses

Lack of long term planning, decisions are made keeping in view the short-term benefits.

Lack of financial budgets for implementation at decisions.

Too much cost consciousness that affects the long run impact and profits.

OPPORTUNITIES

Improvement in product quality

Expansion of plants to meet the demand more efficiently

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Proper sales promotion

Proper placement or warehouses

Delegation of authority so that decisions can be made at the spot without any delay

Long term profits or benefits should be preferred over short-term profits. Quality should

be improved gradually with the results and trends in market

THREATS

Low product quality of competitive product (urea) is a major threat

Major competitors are FFC, ENGRO CHEMICALS and DHC.The sales figures and

market shares for urea of the NFC FFC. ENGRO and DHC are as follows

Market share threat for Urea

NFC FFC ENGRO

25-26% 48% 24-25%

In market the 50-kg bag of Pakarab is sold at RS.330 while ENGRO and DHC at RS.360

sell that bag but even they are more effective

PFL is giving almost negligible incentives to the customers while FFC and ENGRO are

running efficient promotional schemes to attract the customer.

PFL is also lagging behind in providing the product at the right time and place Customer

has to wait 3 to 4 days to load be second truck while at the warehouses of FFC and

ENGRO-CHEMICAL customer immediately get the product- So the placement of

warehouses is a threat. NEML has 6 warehouses in Multan region while FEC has 16

warehouses in that region

The packaging of FFC is also better than Pakarab.

Imported fertilizers are also a threat to Local Industry selling at RS.310 in the market for

a 50kg bag.

FINDINGS AND RECOMMENDATIONS

Pakarab has excessive staff than required. Moreover there is uneven distribution at place

where one man can do the job three people are working there. And at some places a job

of three persons is done by one man. The uneven distribution results in de-motivation of

the employees and gradually his interest in his work decreases that effects the efficiency.

In order to Increase the efficiency of worker, job should be assigned to its caliber to

develop his interest in work that increase the output and decrease the overall cost of

organization.

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In the company there is an unnecessary emphasis on documentation. In transactions a

lengthy procedure of paper work is involved that decreases the efficiency and results in

wastage of time. It is also observed that in some cases the same record is maintained by

more than one department.

There are very few programs for career development of the employees. People working

in one section or department from years are still with the same knowledge and style of

doing job. There should be proper career planning of employee that not only sharpens

the skills of the employee & improve the efficiency but also results in better and improved

output for the organization.

Some employees are working in the same department or section since they are

appointed. Employees should be transferred within departments so there is job variety

that develops their interests, update their information and versatility in their performance.

Too much centralization is there in the organization. Managers at low level are not

authorized to make decisions even about minor things, they have to consult top

management and give justification on small matters. Involvement of top management

and reaching at the final decisions is time consuming and some times results in heavy

losses. Also man at low level with responsibility and no decision making power gradually

loses interest in his job and is de-motivated that effects his performance. So there should

be delegation of authority up to certain extent that enables manager to take timely

decisions at the spot with confidence. When they take decisions they feel themselves

more involved and responsible for the job and in turn their efficiency increases.

Due to high rate of unemployment in the country workers join those jobs which are

against their interest and not according to their calibers. So proper analysis should be

done and explore those employee which can do better what they are currently doing in

the organization

There in no strict means to force employees to take safety measures and show safety

rules. Management should take necessary action in implementing the safety rules in the

organization.

PFL is quantity conscious rather than the quality, while FFC with almost the same plant

and machinery is giving the same standards. After viewing the marketing analysis we

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see that product quality is not up to standard.

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Operations Report-PAKARAB Fertilizers

Documents

Transcript of Operations Report-PAKARAB Fertilizers