A Project report on ERP system in Hindustan Aeronautics Limited(Summer Internship Project)

“Study of Enabling Organizational
Systems
Using ERP/IFS Tools For Competitive
Quotations
At HAL”
-

Submitted By

www.mbaprojectfree.blogspot.com

Page 1

ACKNOWLEDGEMENT

I would like to take this opportunity to thank all the people who have helped in the
completion of this project work. I am grateful to my industry guide Mr. SHIV KUMAR,
Sr. Manager (IT), HAL and my faculty guide Prof R.J. MASLAMANI who guided me
throughout my internship in HAL with their valuable inputs and suggestions. I would also
like to extend my sincere thanks to Mr. M.B. Krishna, Chief Manager (Marketing), HAL;
to let me undertake the activity of making the quotation.
I would like to express my gratitude towards Mrs. Neeta Shakya, Mr. Chandra Mohan,
Mrs. Shasikala and Mr. Govind Raju for helping me in my study of the organizational
systems.
I am thankful to Mr. Anil Mattoo for his constant interest, involvement and support
during the project. Continuing thanks is extended to all the concerned employees and
staff members of HAL, who directly or indirectly were involved in the completion of this
project work.


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EXECUTIVE SUMMARY

This summer training, carried out at Hindustan Aeronautics Limited (HAL), Hyderabad;
included familiarizing with the various processes involved in the company from the point
of receiving of customer orders, the production processes involved; till the final dispatch
of the end product to the customers. A first hand exposure to the Industrial Financial
Systems (IFS), a module of the company’s larger ERP software platform, was a part of
this project work; which enabled better understanding of the cycle time, costing and
additional facilities required by the future customers.
Apart from this, a quotation for one of the company’s project of communication
equipments called 5 KW is made with thrust on competitive costing and delivery time
along with the incorporation of technical requirements of customers. The inputs from the
IFS systems were used to finalize this quotation under the guidance of the marketing
department of HAL.


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TABLE OF CONTENTS
LIST OF FIGURES

iii

1. INTRODUCTION

1

1.1 Company Profile

1

1.2 Marketing Strategies Of HAL

5

1.3 SWOT Analysis

6

1.4 HAL, Hyderabad Division

8

1.4.1 R&D Capabilities

9

1.4.2 Repair and Overhaul Facilities

9

1.4.3 Transfer of Technology (ToT)

9

1.4.4 Key Products in Current Manufacturing Of HAL, Hyd

11

1.4.5 Quality Systems

12

1.4.6 Customer Profile

13

1.4.7 Internal Policies Of HAL

13

2. OBJECTIVE OF THE STUDY

18

3. RESEARCH METHODOLOGY

18

4. INTRODUCTION TO ERP/IFS

19

4.1 Introduction To ERP

19

4.2 IFS – Industrial Financial Systems

20

5. STUDY OF THE ORGANIZATIONAL SYSTEMS USING IFS TOOLS

23

5.1 Production Processes

23

5.2 IMM Process

42

5.3 MRO Process

55


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6. ANALYSIS OF THE MARKETING ACTIVITIES AT HAL

59

6.1 Production Tools Used By HAL

64

7. INTRODUCTION TO 5KW PROJECT

76

8. ANALYSIS OF THE QUOTATION

80

8.1 Working Sheet

83

8.2 Financial Assumptions

83

9. ANNEXURE-1 & 2

84

10. RECOMMENDATIONS

87

11. CONCLUSION

90

APPENDIX

91

REFERENCES


135

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LIST OF FIGURES

Fig 1.1: Organizational Growth Of HAL

2

Fig 1.2: Chart Showing The Different Cadres Of Employees

14

Fig 1.3: Payroll Process

16

Fig 4.1: IFS Screen

21

Fig 5.1: Flow Chart Showing The Production Cycle

25

Fig 5.2: Creation Of Inventory Part

26

Fig 5.3: Product Structure Screen

28

Fig 5.4: Routing

29

Fig 5.5: Creating Issue Slip

31

Fig 5.6: Issue Slip – Part Details

32

Fig 5.7: Shop Order Creation

33

Fig 5.8: Shop Order – Material Tab

35

Fig 5.9: Shop Order – Operation Tab

36

Fig 5.10: Shop Order Header – Operation Tools Tab

39

Fig 5.11: Shop Order – Material Review Board

40

Fig 5.12: Disposition Action

41

Fig 5.13: Flow Chart Showing IMM Process

44

Fig 5.14: Preparation Of New Material Purchase Requisition (MPR)

45

Fig 5.15: Details Of Supplier For Purchase Part

46

Fig 5.16: Creation Of A New Supplier

47

Fig 5.17: Preparation Of Tender Enquiry

48

Fig 5.18: Tender - Single Bid Entry

48

Fig 5.19: Tender- Multiple Bids Entry

49

Fig 5.20: Tender To Order (Purchase Order) Conversion

50

Fig 5.21: Creation Of Purchase Order

50


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Fig 5.22: Preparation Of MR Items

51

Fig 5.23: Creation Of IDTO

52

Fig 5.24: Quality Clearance Of Draft Receipt Voucher

53

Fig 5.25: Receipt Of Receipt Voucher (RV)

54

Fig 5.26: MRO Process

56

Fig 5.27: Serial Structure Info

57

Fig 5.28: MRO Shop Order

58

Fig 6.1: Flow Chart Showing Marketing Activities

62

Fig 6.2: Activities After Receiving The RFQ

63

Fig 6.3: New Customer Creation –General Information

64

Fig 6.4: New Customer Creation – Address Info

65

Fig 6.5: Customer Order Creation

66

Fig 6.6: Manual Reservations

67

Fig 6.7: Picklist Creation

69

Fig 6.8: Connecting To The Load List

70

Fig 6.9: Report Picking

70

Fig 6.10: Load List – Actual Qty Loaded

71

Fig 6.11: Q423 Generation

71

Fig 6.12: Customer Order Load List

72

Fig 6.13: DA Preparation

73

Fig 6.14: Releasing Load List

73

Fig 6.15: Inspection Of Load List

74

Fig 6.16: Delivering The Load List

75

Fig 7.1: 5 kW Transmitter ST-5000

77

Fig 7.2: Line Flattener ATU-5000

79


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1. INTRODUCTION
1.1 COMPANY PROFILE
Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. It
was formed by the merger of Hindustan Aircraft Limited with Aeronautics India Limited
and Aircraft Manufacturing Depot, Kanpur. The Company traces its roots to the
pioneering efforts of an industrialist with extraordinary vision, the late Seth Walchand
Hirachand, who set up Hindustan Aircraft Limited at Bangalore in association with the
erstwhile princely State of Mysore. Hindustan Aircraft Limited was established as a
private company in 1940 for the repair and overhaul of military aircrafts and engines to
support the country’s Second World War efforts [1]. It was taken over by government in
1942 and made into a public sector undertaking. The company was later rechristened as
Hindustan Aeronautics limited (HAL).
Today HAL is a Navratna Company and also the largest Defence Public Sector
Undertaking under the Department of the Defence Production. It has 19 production
Divisions with 9 co-located Research & Development Centers across 7 locations in the
country. The divisions of the company are located at various locations of the country
because if the whole of production is undertaken at a single location, the vulnerability to
attack by enemies increases, and so most of the countries scatter their production at
different places. Over more than six decades in the past, HAL has spread its wings to
encompass activities in the areas of Design & Development of fixed and Rotary Wing
Aircrafts, Avionics & Accessories as well as Manufacture, Maintenance, Repair and
overhaul of:
 Fighter, trainer & transport aircrafts
 Helicopters
 Unmanned Air Vehicles
 Aero- engines
 Avionics
 Accessories

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 Ground Support equipment.
The Fig: 1.1 shows the organizational growth of the company over the years and list
beneath shows the various divisions of HAL [2].

Fig 1.1 ORGANIZATIONAL GROWTH OF HAL

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Bangalore Complex
 Aircraft Division
 Engine Division
 Industrial & Marine Gas Turbine Division
 Overhaul Division
 Aerospace Division
 Foundry & Forge Division
 Airport Service center
 LCA
 Central Materials and processes Laboratory
Helicopter Complex
 Helicopter Division – Bangalore
 Helicopter MRO Division – Bangalore
 Rotary Wing Research & Design Centre – Bangalore
 Composite Mfg. Division - Bangalore
Accessories Complex
 Transport Aircraft Division – Kanpur
 Avionics Division – Hyderabad, Korwa
 Accessories Division – Lucknow
MiG Complex
 Aircraft Mfg. Division – Nasik
 Overhaul Division – Nasik
 Engine Division – Koraput
 Sukhoi Engine Division – Koraput
Design Complex

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 Aircraft R&D Centre – Bangalore
 Mission & Combat System R&D Center – Bangalore
 Engine Test Bed R&D Centre – Bangalore
Other critical Business areas include:
 Aircraft Midlife Upgrade Programmes
 Manufacture of Launch Vehicles & Satellite Structures
 Development of Software and Simulators for aircrafts
HAL has been successful in numerous R & D programs developed for both Defence
and Civil Aviation sectors [3]. HAL has made substantial progress in its current projects:
•

Dhruv, which is Advanced Light Helicopter (ALH)

•

Tejas - Light Combat Aircraft (LCA)

•

Intermediate Jet Trainer (IJT)

•

Jaguar, SU-30, Helicopters like Chetak, Cheetah etc.

•

Various military and civil upgrades.

Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March
2002 which was the first year of its production and so, is a unique achievement in itself.
HAL has played a significant role for India's space programs by participating in the
manufacture of structures for Satellite Launch Vehicles like
•

PSLV (Polar Satellite Launch Vehicle)

•

GSLV (Geo-synchronous Satellite Launch Vehicle)

•

IRS (Indian Remote Satellite)

•

INSAT (Indian National Satellite)

HAL has established a large number of joint venture companies with world’s leading
Aeronautics Organizations in several Hi-tech fields. Apart from these, various Coproduction and Joint Ventures with international participation are also under
consideration. Some of the latest products from HAL include the well-known Advanced
Light Helicopter (ALH), Light Combat Aircraft (LCA), Intermediate Jet trainer (IJT),

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Sukhoi-30 and the Advanced Jet Trainer (HAWK). HAL's supplies / services are mainly
to Indian Defence Services, Coast Guards and Border Security Forces but transport
Aircraft and Helicopters have also been supplied to Airlines as well as State
Governments of India. The Company has achieved a foothold in exports to more than 30
countries, having demonstrated its quality and price competitiveness.
With a sharp focus on lean Management & novel HR initiatives, HAL is steadily
marching towards accomplishment of its mission “to become a globally competitive
aerospace industry while working as an instrument for achieving self- reliance in
design, manufacture and maintenance of Aerospace Defence Equipment and
diversifying to related areas, managing the business on commercial lines in a climate
of growing professional competence “and is slated to fly higher and faster in this 21st
century.

1.2 MARKETING STRATEGIES OF HAL
As part of its marketing strategy, HAL participates in various air shows and
exhibitions across the globe to market its products to its prospective customers
worldwide. By these events, HAL opens itself to worldwide customers [4].
Aero India - This air show is completely organized and sponsored by HAL. It forms a
major part of its marketing budget. Aero-India is held in every 2 years at Bangalore.
It is a 5-day event; in which for 3 days; it is open only for business delegates but the
remaining 2 days it is opened for public as well. In the first three days, the company
holds various lectures and seminars given by the leading people related to this particular
field. It is during the Aero-India show that the MoU’s between various business
delegations are signed. Many government delegations and highly placed dignitaries
attend this show.
Singapore Air show – Apart from Aero-India, HAL showcases its products at Singapore
Air show which is held in every 2 years at Singapore.


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Paris Air Show – Similar to Singapore Air show, HAL demonstrates its products to the
world in the Paris Air show.
Farmbourgh Air show – HAL also demonstrates its products in this air show and uses
the opportunity to attract various customers.
Defence Expo – The Defence Expo is held by the Ministry of Defence, in Delhi, every 2
years and here, various defence companies are invited to showcase their products. HAL is
also a part of this exhibition.
Apart from these air shows, HAL participates in various exhibitions and trade fairs as
well. HAL has purchased a permanent stall at Pragati Maidan, New Delhi; where
international trade fairs are held.

1.3 SWOT ANALYSIS
Strengths:
 Great production capacity – One of the greatest strengths of HAL is its
production capacity; which is the one of the best in the country. It can be assessed
from the fact that it has an impressive product track record - 12 types of aircraft
manufactured with in-house R & D and 14 types produced under license. HAL
has over the years manufactured nearly 3550 aircrafts, 3600 engines and
overhauled over 8150 aircrafts and 27300 engines.
 Infrastructural Advantage – The Company has a good infrastructural support
for its operations. There is a department called Plant maintenance in every
division which continuously takes care of the infrastructural needs of the
divisions. Separate infrastructure is made for the design, R&D and sale support.
 Protected environment – The Company operates in a protected environment
with Government support for funding its operations, dedicated customer base and
lesser competition.

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 Reliable Equipment Maintenance – HAL provides reliable after sales support
and maintenance support; even for the oldest projects like MiG 21 which was
made in the year 1965 unlike its competitors. This advantage attracts the
customers towards the company.
 Robust Design Facilities – The Company provides the advantage of robust
design according to the specifications given by the customer.
 Accreditations – HAL has got accreditations from world labs like SemiLac,
DGQA etc.
 Commitment To Total Quality - The Company is committed to continuous
improvement of all their activities. Its products and services conform to highest
standards of design, manufacture, reliability, maintainability and fitness for use as
desired by our customers.
Weaknesses:
 Government rules and regulations – The Government rules impose certain
problems in the daily operations of the company. The labor unions resorting to
strikes, union elections or recent problems related to pay revisions among laborers
can cause enormous time delays in the projects.
 Lesser accountability – The lesser accountability sometimes leads to more
overhead costs.
 Increasing manufacturing cost – The increasing manufacturing cost every year
due to fixed labor hours and labor rate which cannot be changed pose problems
for the company; as these costs are much higher than the private sector.
Opportunities:

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 Increased number of emerging business markets – The Company initially
catered to only its defence customers. But with the new markets related to civil
aviation and contracts relating to maintenance of aircrafts coming to HAL; these
markets have given immense opportunities to the company.
 Access to International Markets – As direct entry of other foreign defence
companies is not allowed in India due to security reasons; the Joint Ventures and
the Transfer of Technology process between HAL and these companies present
high growth potential for HAL and also indirectly gives access to these
international markets.
Threats:
 Increasing competition – The ever increasing competition from various giant
private sector players like LnT, Mahindra and Mahindra etc; can impose a serious
threat to the Company; as the company is used to a monopolistic environment
over the years.

1.4 HAL, HYDERABAD DIVISION
In early sixties, it was strongly felt that our defence services should be more selfreliant in defence related equipment, electronics in particular. This resulted in HAL
setting up a full - fledged unit to cater to the aviation electronics (AVIONICS). Thus
Avionics Division, Hyderabad was born in the year 1965 primarily for the manufacture of
avionic equipments required for the MiG-21 Aircraft manufacture under the collaboration
with the erstwhile USSR.
To begin with, the Division's dedicated design team took up the task of indigenizing, the
following critical avionics.
•

Identification of Friend or Foe (IFF)

•

UHF Communication set

•

V/UHF Communication System

•

Automatic Direction Finder (ADF)

•

Radio Altimeter (RAM)


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•

Precision Approach Radar (PAR)

These systems were developed, qualified, flight tested and inducted into the various MiG
aircraft manufactured under license in India. Later on, the same equipments were fine
tuned to meet the requirements of other aircrafts like Kiran, Jaguar, Dornier, AN-32 and
Helicopters. Today the Division has spread its wings further to meet the Communication
and Navigation requirements of our defence customers and the Division is fully geared to
enter the international market too.
HAL Hyderabad has become the country’s premier Avionics organization engaged in
Design, Development, Manufacture and Repair & Overhaul of a wide range of Avionics
Equipments and is fully geared up to meet the ever developing avionic needs of the
customers by providing a complete solution from design to in-site support. With the
setting up of the R&D center in the Division, indigenization has resulted in systems
development qualification, testing and induction into various Aircrafts.
1.4.1 R&D Capabilities
The strategic electronics Research and Design Center of HAL, Hyderabad is the leading
R&D organization of avionics in India. More than 200 qualified and experienced
engineers, with a large group of technicians & support staff, are engaged in dedicated
design and development of high quality products meeting stringent quality requirements.
1.4.2 Repair and Overhaul Facilities
Avionics Division, Hyderabad has excellent facilities and procedures for defect
investigation, repair and overhaul of Russian, Western and indigenous Air-borne and
Ground equipments. The Manpower with vast experience & expertise in ROH caters to
warranty support, routine repairs/modifications as well as field repairs. Repair facilities
are available from first generation to the fourth generation Avionics equipment.
1.4.3 Transfer of Technology (ToT)
The technology used by the Hyderabad Division is either indigenously built or is
imported by the process called as transfer of technology from other countries mainly

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Russia and other western countries. But, as countries are usually reluctant to share their
equipments and technologies with other countries; so, when the defence people identify
the need for particular equipment, they give their recommendations to the Government,
which takes steps to initiate a deal between the countries for this transfer of technology to
take place. This transfer of technology takes place in four phases.
Phase 1 – It involves direct buying of the required equipment from the foreign
collaborators; using one set as an in-house prototype and supplying the remaining to the
customers to gain first hand experience. This phase is also called FF (fully furnished)
phase.
Phase 2 - It involves buying from foreign collaborators but carrying out of certain quality
tests by HAL to gain experience in testing procedures. This phase is also referred to as
SKD (semi-knocked kit) phase.
Phase 3 – It involves assembling and testing of the materials supplied by the OEM
(Original equipment manufacturer) according to the standards and drawings given by
OEM along with the materials. This phase can also be called as CKD (completely
knocked kit) phase.
Phase 4 – Here, the raw materials are procured from open market and the equipments are
designed and developed according to the Indian Military Standards. This phase can be
referred to as RM (raw material) or IM (indigenous manufacturing) phase.
Indigenously developed equipments:
 Airborne Radar Equipments (RAM, IFF)
 Communication Equipment (INCOM,COM)
 Navigation Equipment (VOR/ILS, TACAN)
 On-board Computers
 Testers (TJ-640, RT 503)
Equipment under Transfer of Technology:

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 PARP 2080C from Selex Galileo, Italy
 1kw & 5kw HF transmitters from Selex, Italy
 Digital Video recording system from RADA, Israel
 9 types of Avionics including RLSU Radar for Su-30 MKI
1.4.4 KEY PRODUCTS IN CURRENT MANUFACTURING OF HAL, HYD
S.NO
1
2
3
4
5
6
7

Products
IFF

Description
Identification of friend or foe, automatic replies to

INCOM, COM
ACS
Mission Computer (MC)

ground or airborne interrogators.
Integrated Radio Communication System
Advanced radio communication system
Used for Navigation & Guidance; Weapon

RAM 1701A
1kW HF Transmitter

Aiming- Task management etc.
Radio altimeter for height indication over terrain.
HF system for use between ship to ship, ships to

5kW HF Transmitter

shore, shore to shore communication.
A Solid state transmitter operating in the high
frequency band and meant for use between shore

8
9

PAR

to ship, shore to shore communication.
Precision Approach Radar; it provides azimuth,

ILS

elevation, bearing information to the aircraft.
Instrument landing system used for route
navigation,

runway

approach

landing.

Fully

indigenously designed and developed by HAL,
10

DVRS

Hyderabad.
Digital Video recording system; to record the

11

RSLU Radar

video picture and flight data in digital format.
Primary sensor for Su-30 to detect and track

12

Voice Warning System

airborne, ground and sea targets.
Intended for automatic warring of crew members
with emergency, preventive and informative

13

Weapon Control System

messages.
Preparation of aircraft armament to combat
applications.


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14

Fire alarm System

Provides audio and visual alarm indication to the
pilot in the event of fire or over heat in the engine

15

Communication

compartments.
means Ensures two-way telephone communication in

complex

V/UHF and HF ranges.

1.4.5 QUALITY SYSTEMS
Avionics Division, Hyderabad is committed to Quality system focused on customer
solutions and driven by customer success. The Division’s quality system together with
elements of ISO provides an integrated frame work for consistent quality in business
processes. The Division is accredited with ISO 9001 certification for design,
development, manufacturing and servicing of airborne, ship-borne and ground based
electronic systems. Besides the Division is also accredited with ISO 14001 certification
for environmental management system.
As a firm, the Division is registered with the directorate of Aeronautics Quality
Assurance (DGAQA), Ministry of Defence, Government of India. The indigenously
developed products such as IFF, Radio altimeter and communication equipments bear the
quality approval from BAE, UK. The Quality Assurance System of the Division ensures
product quality right from the design stage. The products are subject to a series of tests to
ensure reliability. The Division collects, monitors and analyses data from across the
company and users to continually improve the products, processes and overall
effectiveness of their Quality Management system. The Division aims to achieve world
class

standards

in

manufacturing

practices

with

continual

improvements

in

products/processes/systems to meet market challenges.
1.4.6 CUSTOMER PROFILE
Established initially to cater to Indian Air Force, today the list of the customers includes:


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 Indian Air force
 Indian Army
 Indian Navy
 Coast Guard
 Civil aviation sector
 Defence Research & Development Organization
 Center for Airborne Systems
 Ship Building Industries GRSE,MDL,GSL,HSL
 Other sister divisions of HAL
 Exports to various countries.

1.4.7 Internal Policies of HAL
The internal policies that are covered here include the HR policies and the payroll
process. HR policies of the company can be categorized into five which consists of
Establishment, Promotions and Appraisals, Training, Recruitment and Wages.
Establishment
A Personnel file of each and every employee is maintained by the company. It contains
all the statistical data pertaining to that employee. It can be the caste, physically
handicapped nature, X-servicemen, religion, state, date of birth, mother tongue and
various other details. There are about 3000 employees at the Hyderabad division. These
employees are categorized into two types namely officers and workmen. Officers can be
either technical or non-technical. Similarly, workmen can be direct or indirect. This
categorization of employees is shown in the form of a chart in fig: 1.2 below.


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FIG 1.2: CHART SHOWING THE DIFFERENT CADRES OF EMPLOYEES
Promotions and Appraisal
There are two schemes for promotion of officers. They are Time Scale promotions and
Internal merit scheme (IMS). According to time scale promotions, any officer who has
spent 4 years as a particular grade officer is eligible for promotion. Internal merit scheme
presents an opportunity to get a promotion within three years; if the merit score given by
the respective heads of departments to the officer exceeds 80 percent in all the three
years. Similarly, workmen are eligible for promotions every 4 years. Each employee is
also given a staff number for identification. The officers have a scale of 10 grades with
grade 1 assigned to Assistant Engineer, Grade 2 to Engineer, Grade 3 to Deputy
Manager, Grade 4 to Manager, 5 to Senior Manager, 6 to Chief Manager, 7 to Deputy
General Manager, 8 to Addl. General Manager, 9 to General Manager and 10 to
Managing Director. The work men are given promotions based on scales in increasing
order from S1 to S10. S11 is a special scale and a worker in this category is considered
equivalent to Grade 1 officer. Other than these, there are contract workers, apprentices
and employees belonging to X-servicemen category.

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There is an appraisal scheme that is employed for workers called as Mutually
Agreed Task Initiative (MATI). According to this, the appraisals are given to the work
force based on score obtained by them during their work period. The score includes 40%
weightage for innovativeness in jobs and 60% for efficiency in their regular jobs. Also, at
the end of the year, the employees are asked to fill an appraisal form to assess their
performance during the year. This is called the Personal Appraisal Form (PAR).
Training
The company realizes the importance of continuous training of its employees and so has
incorporated both in house and outside training in its policies. The in-house training is
conducted by experts within the company at regular intervals. Outside training is where
the employees are sent outside to institutes like HAL Management Academy or any other
premier institutes to undertake certain training or courses. The company also has a policy
of inducting apprentices every year and their training takes place within the organization.
Recruitment
The company recruits both externally through media, campuses, employment agencies
etc as well as through internal job postings. There are various activities involved in the
process of recruitment. Firstly, the man power planning is done for the year by taking
inputs from various departments of their personnel requirements. Then, the recruitment
process is planned using various methods as mentioned above and the job profiles are
made. After that, the job advertisements are given and when, the applications are
received, the candidates are evaluated against suitable criteria. The selected candidates
are made to undergo an employee induction program. A continuous follow-up of their
training is done and are finally, posted to various jobs. The rosters are also taken care of;
which means that the number of people to be recruited from the reserved categories like
SC, ST etc is decided.
Wages
The wages of officers consists of components like the Basic amount, Dearness allowance
(DA), House Rent Allowance (HRA) and other allowances like canteen, clothing etc. The

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DA amount changes every three months due to changes in inflation rate. The HRA is
treated as 30% of the basic amount. The wages of workmen consist of basic, additional
pay like incentives, bonuses etc, personal pay and service weightage pay (SWP).
PAYROLL PROCESS
The regular pay to the employees is usually given on 1st of every month. Apart
from this, supplementary pays are given three or four times every month usually on 12th,
20th and 25th of the month. The salary amount to be given is decided by the payroll
department based on the inputs from various other departments. The inputs include the
information about loans taken by the employee from the welfare department, attendance
of the employee from time office department, inputs like conveyance, contingency,
canteen, medical bills, LTC, traveling allowance (TA) etc. After gathering all the inputs
regarding the employees, the DA changes are identified every month and then, the pay
slips are distributed to the department heads.
The above process can be better understood in the form of a chart as shown in fig 1.3:

FIG 1.3: PAYROLL PROCESS

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The inputs from various departments are converted into a common format for pay
processing. The pay slips are generated with the help of IFS/ERP systems. Sometimes,
reports regarding the pay process are required by the departments for different reasons.
For this purpose, the reports can be generated in different formats as can be seen from the
flow chart for easier use.


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2. OBJECTIVE OF THE STUDY
The objective of this study is to understand the Organizational systems and processes of
Hindustan Aeronautics Limited (HAL), Hyderabad. It is carried out with the help of
Industrial Financial System (IFS) tools being employed at the company. These IFS
systems help in keeping a track of production cycle of products for the timely delivery of
the products and customer specifications. The inputs obtained using these IFS tools were
also used in the making of a Quotation for one of the communication projects called 5kW
of the company.

3. RESEARCH METHODOLOGY
An exploratory research was carried out as for this project to gather all the necessary
information required. As a result, all the activities relating to the Marketing, Production,
Integrated Material Management, Maintenance Repair & Overhaul etc; were studied in
detail to understand the functioning of the company as well as for the making of a
Quotation for the 5kW project.


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4. INTRODUCTION TO ERP/IFS
4.1 ERP – ENTERPRISE RESOURCE PLANNING
ERP (Enterprise Resource Planning) comprises of a commercial software package that
promises the seamless integration of all the information flowing through the company –
Financial, Manufacturing, Human resources, Supply chain & Customer information.
Each of the departments typically has its own computer system optimized for the
particular ways that the departments do their work. But ERP combines them all into a
single integrated software program that runs off a single database so that the various
departments can more easily share information and communicate with each other. This
single software program serves the needs of all the people that are involved in the
business processes.
Benefits of ERP system:
1. Integration of business process.
2. On line/ real time information throughout all the functional areas of an
organization.
3. Data standardization and accuracy across the enterprise.
4. “Best-practices” included in the applications.
5. The efficiency they force an organization to undertake.
6. Reduces paper work.
7. Reduction of lead time.
8. Improved resource utilization.
9. Homogenizes the organization process.
10. Total transparency and information leads to better external and internal
communication.
11. Optimum inventory management.
There are several factors that are critical for the success of ERP:
1. Commitment from all levels of management.
2. Participation and dedication of systems future users.

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3. ERP brings in a big cultural change – adoption to the changes by all the users
including grass root level.
4. Backing support & cooperation of IT personnel.
5. Development of interfaces with current operational systems and with those under
development.
6. Spirit and collaboration on part of all.

4.2 IFS – INDUSTRIAL FINANCIAL SYSTEMS
IFS System provides a broad range of enterprise, manufacturing, service management
and asset management solutions. An integral part of IFS Applications, IFS solutions
seamlessly work together enabling companies to employ lean enterprise concepts, control
costs, manage projects, increase efficiencies in their supply chain, and measure their
performance.
IFS basically originated in Sweden and they have presence in market since 1983. BAe
system (British Aerospace), UK and IFS Global formed a company called IFS Defence
focused on commercial aviation, aerospace and defence. IFS Systems, today, has more
than 30 projects executed in 14 countries like South Africa, Netherlands, Middle East and
Asia Pacific and 10000+ users license sold only in India. IFS India – International
competency center started operation in India in the year 2000 and IFS India independent,
a 100% subsidiary of IFS- Sweden became operational since Jan 2003. It had got more
than 20 customers within 38 months of operation in INDIA.
IFS focuses in commercial aviation, aerospace and defence, automatic, industrial
manufacturing, process industry, rail & transport, maritime, energy, telecom,
infrastructure, retail. The IFS India office is located at Noida, Mumbai & Bangalore. Its
major customers include HAL; AP Transco, Hyd- Power distribution; SC Johnson; GNA
Enterprises; Escorts, Delhi- Automotive; Escorts Heart Institute, Delhi; BAe Systems,
UK; US Air Force; Pepsi, China; MTN, Nigeria etc.


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Using IFS Navigator, transparent visibility and control can be maintained over the
projects; as one can get complete visibility into the project. With its easy-to-access and
use web portal interface, the company, its partners and IFS can work together or
separately to implement IFS Applications.

FIG 4.1: IFS SCREEN
The image shown in fig: 4.1 is a snapshot of an IFS Screen. The left side of this screen
shows an IFS Navigator with links to various applications. The right side of the screen
called as an IFS Workspace, is where the data is entered. These links and forms are
updated by the concerned departments continuously with time.


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The IFS implemented in HAL uses the Oracle 10 G – R.1 database. Centura Language is
used at the front end for the IFS development and for the total integration of all the
transactions.
The IFS provides various executable files for different functions of the company to use.
The access to these .exe files is provided by giving a username and password to different
departments. Some of the .exe files used by the company are distribution.exe for
marketing and IMM functions, Configure&MaketoOrder.exe for production,
ManufacturingMRO.exe for MRO, HumanResources.exe for HR functions etc. This
role-based view gives everyone access to the information they need to get their job done
on time, on budget.


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5. STUDY OF THE ORGANIZATIONAL SYSTEMS USING
IFS TOOLS
5. 1 PRODUCTION PROCESS AT HAL, HYDERABAD DIVISION
There are several departments involved in the production process of the company. After
the customer orders are created by the Marketing department and manual reservation of
parts for a particular customer order is done, the role of Central Planning department
comes into play. Firstly, Central Planning prepares a Project master which gives the
details of the products and material required for the project. Following this, a part master
is made by the department giving a detailed picture of all the inventory parts required
assembly-wise for the production process. Then, a product structure also called the Bill of
Material (BOM) is designed. This BOM gives the list of the raw materials, their required
quantity and the estimated man hours (SMH) for the operations.
Simultaneously; there is the Methods department; a part of the planning department
which writes the operations that need to be carried out on the process sheet; also called as
the route card to help the workers to execute various operational activities for the
manufacture of items. This process of writing the operations using the material part
master and the tool part master is known as routing. Once, the process sheet is made, the
Management Services department (MSD) gives the time updations like the set up time
and the per piece time of the project. Set up time is the time that the machines take for set
up purpose and for tuning the people to its use. It is based on the cycle time. Per piece
time is the time required for the production of a single unit.
The company makes an annual production plan for the allocation of different work
orders. This work order defines the type of work, amount of work and activities to be
done according to the annual production plan. Based on the BOM and work orders, the
shop orders for manufacturing are generated and are given to shop/shop planning to start
the production activity. These shop orders are also used for the printing of job tickets of
workers. These job tickets report the time spent by each worker every day and are used

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by the company for giving them incentives. Basically, there are two kinds of shops - the
assembly and the fabrication shops for each project. A fabrication plan is made for these
shops which guides through the fabrication and assembling of materials. When the shop
order for manufacturing arrives at the fabrication shop, the shop planning arranges for the
raw materials that are needed by creating pick lists. The manufacturing shops uses these
pick lists for the issue of raw materials from the stores for fabrication of items. The
manufacturing shop then sends these fabricated items back to the stores for use by the
assembly shop as needed.
Now, the assembly shops use the BOM or the product structure for the assembling of the
items. The assembly shop planning people now has to get the required items into the
shop. If the material is present in the stores which is possible; if the item is fabricated or
manufactured in the company itself; then a bulk issue voucher; also called as an issue slip
is prepared for the collection and maintenance of material from stores to the assembly
shop. The Bulk issue voucher is used for the issue of manufacture and purchase items
from the stores. But this issue slip has to be authorized by the Material control
Department before going to assembly shop. When the issue slip gets authorized, the
material is collected from the stores for assembling. If the material is not there in the
stores and has to be bought from outside, then the IMM is notified so that the Purchase
department buys such items. After the completion of assembly process, the finished
goods are sent to the packing stores and a finished good report (FGR) is made after
inspection and quality clearance by the Quality department. A copy of this FGR is sent to
all the concerned departments like planning, marketing, finance etc. The marketing
department makes a dispatch order (DO) and dispatch advice (DA) for sending the
finished goods to the customer.
The Quality control (QC) department plays an important role as it inspects the quality of
the products at every stage using an inspection memo. The final products are sent to the
customers only after the approval of QC department.
This above production process flow is explained in the form of a flow chart as shown in
the fig: 5.1


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FIG 5.1: FLOW CHART SHOWING THE PRODUCTION CYCLE

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The Configure&MakeToOrder.exe is the executable file used by the company for the
integration of all the production activities using IFS tools.
The first step using IFS tools is the creation of an inventory part which refers to the part
that is to be manufactured. This is done using the screen shown in the fig: 5.2 by using
the following menu path:
Inventory  Inventory Part  General Tab Screen.
This tab window can be used to specify or view general information about the inventory
part, such as whether the part is manufactured or purchased, the family to which the
product belongs to etc.

FIG 5.2: CREATION OF INVENTORY PART

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The above screen has many fields which are to be filled like –
Part type; in the Part Type field “Purchase” appears by default and so the user should indicate
whether the part is manufactured or purchased.
Unit of Measure for the part in the U/M field. This is the code value for the unit in which this
part is stored in inventory.
The ABC code in the ABC Code field. ABC Code classifies the part according to the value of
the part and quantity consumed. When the part is created, the system sets to ABC code to ‘A’.
The Project Name in the Product Family field.
After the creation of the inventory part, the next step is to create a product structure using
the below menu path:
Inventory  Manufacturing Standards  Structures  Product Structure
Screen
Firstly, the Inventory Part for which the Product Structure has to be created is selected.
This tab window is used to build structures for parts by specifying which components go
into a parent part as can be seen from fig: 5.3.
The various fields that are to be entered are the Part Number in the Component Part
column, the description of the selected part number in the Description column, the strip
part number for the selected part number in StripPartNo column, the Unit of
Measurement for the selected part defined in the inventory master in the Unit of Measure
column, quantity per assembly in Qty per Assembly column, position of part mentioned
in the drawing in the Drawing Position column, the operation number in which the
selected part is going in the Operation column etc.
The State of the structure indicates how the structure information can be used. The ability
to change the component records depends upon the state of the alternate structure. The
Possible status in the State field is:
Tentative: Normally, this is the default value. The Component details can be changed in
this state.

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Plannable: This status indicates that the structure is available for planning. The
Component details can also be changed in this state.
Buildable: This status indicates that the structure is available for the uses. This status is
used for generating order components and for planning.
Canceled: This status indicates that the structure has been canceled and will not be
available for use in Manufacturing or Planning.

FIG 5.3: PRODUCT STRUCTURE SCREEN


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Once the Product Structure is complete, it is changed from “tentative” to “plannable”
state and when the product structure is finally checked and the structure is ready for use,
the state of Product Structure is changed from ‘Plannable’ to ‘Buildable’.
After the product structure, the routing for parts has to be done using the window of fig:
5.4. Routing can include only machine information, only labor information, or both. The
menu path to be used for routing is Inventory  Manufacturing Standards  Routing  Routing Screen

FIG 5.4: ROUTING


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This window can be used to view and maintain operation routing, machine, and labor
details for the specified part. The fields to be entered include the operation number in the
Operation No column, the operation description in the Operation Desc column, the detail
of operation in the Opr Details or Note text column, Department No column displays the
ID of the department of corresponding work center, Department Desc column displays
the description of the corresponding department.
Once the Product Routing is complete, the state is changed from ‘Tentative’ to
‘Plannable’. Now, the MSD department uses the Query option for finding all the routings
in the ‘Plannable’ state. The MSD enters the value in Labor Setup Time Column, the
labor setup time, in hours, required for the operation. The value for labor setup time must
be 0 or greater. Labor Setup Time Hrs, Labor Setup Time Min and Labor Setup Time Sec
column displays the time in hours, minutes and seconds. The same value appears in Mach
Setup Time, Mach Setup Time Hrs, Mach Setup Time Min and Mach Setup Time Sec
Column. MSD also enters the value in Labor Run Factor Column which is the labor run
factor for the operation. This, in conjunction with the factor unit, defines how much time
is required for labor activity. MSD selects the applicable value in Factor Unit Column
(Possible values are Hours, Hours/Unit and Units/Hour).
The Definition of the possible values is:
Hours/Unit - The number of hours it takes to manufacture a unit
Units/Hour – The number of units that can be manufactured in an hour
Hours – The number of hours required for manufacturing, regardless of the number of
units.
Apart from the above, MSD also enters the Crew Size in the Crew Size column. Crew
Size is the number of people in the labor crew for this operation and the material
transport time in Transport Time Column which is the time it takes to transport material
from this operation. The value for transport time must be 0 or greater.


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After entering the above details, MSD changes the routing status from ‘Plannable’ to
‘Buildable’.
Once the assembling process starts, the required material is retrieved from the stores
using an issue slip by using the screen in fig: 5.5 and the below mentioned path Inventory  Transport Task  Issue Slip

FIG 5.5: CREATING ISSUE SLIP
The issue slip creation screen consists of the issue number, creation date, destination to
be moved, part to be moved, part description, units of measure and ‘from’ location of the
part. In the issue slip, the number of items of the stock in the ‘from’ location can be
viewed in the current stock column. This can be seen clearly from the fig: 5.6; where the
quantity can be requested after checking the levels of current stock.

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FIG 5.6: ISSUE SLIP – PART DETAILS
The Stores Requisition/ Issue slip that is printed later to enable the movement of material
from stores to shop is attached in the Appendix.
Shop Order - A shop order is an electronic document that authorizes the manufacture of
a specified part. When a shop order number is entered, the system creates material
requirements and schedules operations. The system retrieves operations and structures
according to the part, alternative, and serial number that are entered.
The shop order is created using the screen shown in fig: 5.7 and is opened using the
following path:
IFS Navigator  Shop Orders  Shop Order
State: This field displays the status code that indicates the progress of the shop order in
the manufacturing process. It also controls what the user can do with the shop order.
When a new shop order is entered, the system sets its status automatically to either
Planned or Released.

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The various shop order status codes are:
Planned - A Low – status shop order, e.g., an order for a part that user has planned but
have not yet made the final decision to manufacture. User cannot reserve material or
schedule operations for an order with this status.
Parked - A shop order that has been blocked, or must be released before user can process
it further.
Released - A shop order that has been released for production.
Reserved - A shop order that has been reserved.
Started - A shop order that has been started.
Closed - A shop order that has been closed.

FIG 5.7: SHOP ORDER CREATION

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The other fields in the above screen that need to be filled are –
a) Order No - field displaying the shop order number
b) Rel field - displaying the release number of shop order
c) Seq field - showing the sequence number of shop order
d) Part No - The number identifying the part that will be manufactured.
e) Description - The part description in the Description field
f) Site field - identifying the site at which the shop order is entered
g) Earliest Start Date field - displays the earliest date on which the shop order can start
h) Start field - displays the actual date on which the shop order can start
i) Lot Size field - displays the desired lot size, i.e., the total quantity to be manufactured
j) Need Date field - displays the earliest date by which the shop order must be completed
k) Finish field - displays the actual date on which the shop order is completed
l) Operations field - displays the status of the operations needed for manufacturing.
This field gets updated automatically with reporting of operations, qty completed, set-up
time or manufacturing time. The values can be No Report, Partially Reported and
Completely Reported.
m) Qty Complete field - displays the quantity of the parts completed and received into
inventory. User cannot update this field; it is updated automatically when stores receive
completed parts in inventory.
n) Operation Scrapped field - displays the quantity of the parts scrapped during the
manufacturing process.
o) The work order number – It follows a coding scheme as follows:
For e.g.: - 11/165/1/25 is a work order number;
Here, 11 indicates the Site Division,
165 is the Project Code
125(Last 3-digits of the work order) is the Batch code


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The Shop Order Header – Material Tab in fig: 5.8 can be used to view component
material needed to manufacture the parent part. These can be revised by adding new
components, e.g., material that is needed only for this shop order; need not be added to
the part structure. The material can even be reserved for a particular shop order.

FIG 5.8: SHOP ORDER – MATERIAL TAB
This window contains:
Line Item No: This column is used to sequentially number the component parts.
Component Part: Shows the component part.
Part Description: The description of the selected part.
Date Required: The date on which the part is required in manufacturing. If no other date
is specified, this date is the original start date of the shop order. If user link material to an
operation, the date required is the start date of the operation.
Qty per Assembly: This column displays the quantity of component parts needed to
manufacture one parent part. This information is provided at the time of entering the part
structure.
Fix Scrap Qty: The fixed scrap quantity. The fixed scrap quantity is the total number of
parts that will be scrapped, regardless of the amount manufactured.
Scrap Factor: The scrap factor is the percentage value relative to the total amount
manufactured.

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Qty Required: Qty required column displays the total quantity of component parts
needed for the shop order. This information is calculated based on the quantity per parent
part and the lot size of the shop order. The quantity required is calculated as shown
below:
Quantity Required = ((Quantity per Assembly * Lot Size) / (1 – (Scrap Factor /
100))) + Fix Scrap Qty
Shop Order Header – Operation Tab in fig: 5.9 is used to view and change information
about the machine and the labor operations needed to manufacture the parent part for a
shop order. Operations may include machine information, labor information, or both.
Labor information requires a labor class, crew size, labor setup time, and manufacturing
factor. Both machine and labor information may have associated setup times,
manufacturing/labor factors, or both.

FIG 5.9: Shop Order – Operation Tab

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This window contains:
Operation No: This column displays the number of the operation. This information is
taken from the operation list of the part that is entered at the time of routing definition.
Operation Description: This column displays the description of the selected operation.
Oper State: This column displays the status of the operation. User cannot update this
column. It is updated automatically according to the actions performed in the operation.
Work Center No: This column displays the work center that will perform the operation.
This information is entered at the time of product structure creation.
Outside Op Item: This column displays the part ID used for the subassembly when
handled in outside processing or subcontracting.
Qty Complete: This column displays the quantity of the parts completed by the
operation. User cannot update this value; it is handled automatically when quantity is
reported.
Qty Scrapped: This column displays the quantity scrapped by the operation. User cannot
update this value; it is handled automatically when scrap is reported.
Remaining Qty: This column displays the remaining quantity to manufacture in the
operation. User cannot update this column. The quantity is automatically reduced when
stores receive into inventory.
Outside Qty Shipped: This column displays the quantity of the subassembly shipped to
the outside processor or subcontractor.
Labor Class No: This column displays the labor class to which the labor operation
belongs.
Labor Setup Time: This column displays the setup time needed before labor activity for
the operation can start. This information is retrieved from the operation list that is entered
at the time of routing creation for the ordered part in the Routing window.
Labor Factor: This value, together with the factor unit, indicates the time required for
labor in this operation. This information is also retrieved from the operation list that is
entered at the time of routing creation for the ordered part in the Routing window.
Crew Size: This column displays the crew size of the operation.
Remaining Labor Hours: This column displays the time remaining for the labor
operation.

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Factor Unit: This column displays the labor factor unit. The possible values are
Hours/Unit, Units/Hour and Hours.
Transport Time: This column displays the transport time of the operation, i.e., the time
it takes to transport material from this operation to the next.
Efficiency: This column displays the efficiency of the labor operation.
Sched Direction: This column displays the scheduling direction of the shop order. The
possible values are Backward Scheduling, Forward Scheduling and Manual
Scheduling. Backward Scheduling is based on the need date. In forward Scheduling,
operation is scheduled as soon as possible. In Manual Scheduling, the scheduling begins
by entering both the start and finish dates.
Op Start Date: This column displays the start date for the operation.
Op Finish Date: This column displays the finish date for the operation.
Queue Time: This column displays the queue time for the work center, i.e., how long the
material must wait before the operation can begin. This information is retrieved from the
work center master.
Sched Capacity: This field displays the scheduling capacity for the work center.
Possible values are Infinite Capacity and Finite Capacity.
Work Guideline: This column indicates whether there is a work guideline for this
record. Possible values are yes and no.
Shop Order Header – Operation Tool Tab in fig: 5.10 is used to view, add and modify
information about the tools needed to manufacture, disassemble, repair or assemble the
parent part. It can be used to create new operation tool records or revise existing
operation tool records.


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FIG 5.10: SHOP ORDER HEADER – OPERATION TOOLS TAB
Operation Description column displays the description of selected operation.
Tool Description column displays the description of selected Tool Id.
The quantity of the tool used for this operation is entered in the Tool Quantity column.
Shop Order – Check Material Availability (Material Coordination) is used to check
the availability, i.e., the demand and planned receipts, of the inventory parts that are
included on the shop order.
Shop Order – Release Shop Order - Once the order is released, the further processing
of the shop order can be carried out.
Pick List (Shop Document Generation)
A pick list as shown in the Appendix is created based on the shop order and the structure
of the part. It shows the inventory locations from where the parts will be picked. The pick
list contains all material to be used in manufacturing the shop order.
Shop Order – Report Shop Order Operation
This activity is used to report the time and quantity for a shop order operation. It can be
the time needed to set up an operation before manufacturing begins or the time of the
actual manufacturing. As a result of this activity, depending on how the operations are


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performed, the system changes the status of the operation to Setup started, Setup
complete, Partially reported, or Closed.
Operation Reporting:
Respective departments are responsible for reporting the shop order Inspection
Operation. This is done by Raising MRB Against the Shop Order (Manufacturing). The
Inspection Department is authorized for creating the MRB against the shop order. By
raising MRB, the Inspector can say whether the components or assemblies are accepted,
can be reworked or are rejected. To create this MRB, the various fields like Description
which is the Name/ Staff no. of the person inspecting, MRB Code which is ACC or
SNAG or PDO etc are to be entered. MRB number is automatically generated. This is
shown in fig: 5.11 and 5.12.

FIG 5.11: SHOP ORDER – MATERIAL REVIEW BOARD

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FIG 5.12: DISPOSITION ACTION
BIV is a Bulk Issue Voucher that is printed against Top assemblies or group of
assemblies. It is a list of all the materials required from the stores. A sample of this BIV
is attached in the Appendix.
There are many other manufacturing reports that are used during the operations whose
functions are already explained above like the process sheet, pick list etc; which are also
attached in the Appendix.


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5.2 IMM PROCESS
IMM (Integrated Material Management) module consists of three departments namely
Material Control, Purchases and Stores.
The main task of the Material Control department along with the IT department is to
make a material requirement plan (MRP) for the different projects of the division. MRP
is a detailed summary of the materials required for different projects based on the inputs
given by the shops. In MRP, each item has a rate based on a manual rate estimation or
prior purchase experience; which has to be sanctioned by the head of that department and
the finance department. MRP is for the purchase of new materials that are required but if
the items are already available, then a Material Requisition (MR) is sent from the shop by
raising an issue slip for the issue of required material from stores to the shop or shop
planning. Also, it is the Material Control department that assigns a material code; which
is usually of 8 digits to different materials for identification purposes.
From Material Control, the MRP is handed over to the Purchase department to plan for
the purchase of materials that are required based on prior consumption pattern. The
Purchase Department is responsible for the categorization of the items of the suppliers to
know what they can supply. For the selection of these suppliers, a vendor data and vendor
rating is maintained by the material control and purchase departments. The vendor rating
is given based on their delivery schedule, payment schedules etc; which form the base for
placing the purchase order. Firstly, an enquiry sheet is sent to the suppliers by email or
courier; along with the terms and conditions and last date for receiving the quotation. A
committee consisting of people from purchase, finance and material control departments
is then formed to decide on the suppliers. The bids received from the suppliers in a sealed
cover are opened on the last date mentioned before. Following this, a comparative
statement of suppliers is generated by the system to help in making the final decision.
The file goes to the finance department to wet the costs; either increase or decrease in
costs. After this, a purchase order (PO) is made. Initially, a draft purchase order is sent
and any disagreement that arises with respect to the costs is sorted out. A final purchase
order is then sent to the supplier. A sample of this PO is attached in the Appendix.

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When the supply is received, the invoice and test certificates are generated. This supply
goes to the stores and a draft receipt voucher is made. Inwards Goods Inspection or
Quality Control department inspects these inward goods; the goods that are found faulty
are rejected and the quantity that is accepted is entered in the system. Then, based on the
invoice which also goes to the finance department for approval; the payment is done by
reducing the rejected costs. For foreign suppliers, charges vary everyday due to
exchange rate fluctuations and so, payment is done based on that day’s exchange rate.
After this, a final receipt voucher (RV) is printed and the goods are now sent to the
receipt stores. The receipt stores are of two types called indigenous and imported or third
country stores. If the suppliers are of foreign country, then the goods are sent to third
country stores or else to the indigenous receipt stores. From there, the goods are then
moved to the holding stores based on the requirements of the projects.
The procedure as explained above is shown in the form of a flow chart below in Fig:
5.13. Hence, the procurement of raw materials and launching of the required material into
the shop is the sole responsibility of the IMM departments.


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FIG 5.13:

FLOW CHART SHOWING IMM PROCESS


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The activities of IMM using the IFS tools are briefly described below. The snapshots of
the IFS screen are also shown for better understanding of these processes. The
distribution.exe is the executable file used by the IMM departments.
Firstly, the preparation of MPR by the Material control department is described by using
Fig: 5.14. The following menu path is followed for this purpose:
Purchasing  Purchase Requisition

FIG 5.14: PREPARATION OF NEW MATERIAL PURCHASE REQUISITION
(MPR)
Various details are to be entered in the relevant fields by the IMM people like the Part
No. which is the Material Code of the item, Quantity which signifies the Quantity to be
requested, Wanted Receipt Date, Tentative Delivery Date, Supplier or the Vendor Code
etc.

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FIG 5.15: DETAILS OF SUPPLIER FOR PURCHASE PART
Once the supplier has been decided, the details regarding the supplier of the purchase part
like the supplier name, part description, price, price unit etc; are entered into the systems
as shown in the above screen Fig: 5.15.
But before this, when the tender is raised, the details of all the suppliers biding for the
order should be there in the system. This is done by the creation of new suppliers in the
similar way as is done for the customers by using the following menu path:
Enterprise  Supplier  Supplier
It consists of fields like the identity which is the supplier code, name of the supplier,
default language, country origin of the supplier etc.
It also has various other tabs as shown in Fig: 5.16 like the address, communication
method, invoice details etc.


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FIG 5.16: CREATION OF A NEW SUPPLIER
After the above process, a tender enquiry is raised and this enquiry sheet is sent to the
vendors for them to enter their bids. The menu path for the tender enquiry screen is as
follows:
Purchasing  Tendering  Tender Entry
It contains fields like the tender number, bid receiving date, bid closing date, bid opening
date, submission date, part number, part description for which the tender is raised, the
bidding amount etc.
The screen showing the tender enquiry is as given in fig: 5.17.


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FIG 5.17: PREPARATION OF TENDER ENQUIRY

FIG 5.18: TENDER - SINGLE BID ENTRY

Once the enquiry sheet is filled by the vendors and sent back to HAL, these bids are
entered in the system on the bid opening date. The Fig: 5.18 shows the price that is given

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by the supplier for the parts for a single bid entry; which means when only one bid is
taken from a single supplier. This is done by using the following menu path:
Purchasing  Tendering  Tender Bid Entry
In the case of multiple bids entry, when bids are received from various vendors for that
particular tender, the menu path that is followed is as given below:
Purchasing  Tendering  Tender Multiple Bids Entry

FIG 5.19: TENDER- MULTIPLE BIDS ENTRY

As can be seen from the screen in fig: 5.19, the bids received from various vendors for a
particular part; are entered in the system.

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After this, when the bids are closed for selecting the supplier; a comparative statement as
can be seen in the Appendix of the suppliers is made and L1 is finalized; which is the
least price. Once the Bid Entry Process is over, the corresponding ‘Tender Entry screen’
is right-clicked on the header and the option ‘BidReceive’ is selected to change the status
from ‘Issued’ to ‘Bid Received’ as can be seen in fig: 5.20

FIG 5.20: TENDER TO ORDER (PURCHASE ORDER) CONVERSION
When the L1 has been finalized, a purchase order shown in fig: 5.21 is created by using
the menu path:

Purchasing  Purchase Order  Purchase Order

FIG 5.21: CREATION OF PURCHASE ORDER

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The purchase order (PO) contains the details like the Part number or material code, part
description, Quantity to be requested, Purchase unit of measurement U/M, Wanted
Receipt date, tentative scheduled date, price/currency, supplier part description (The
description of the material if it is different from the Standard Description in the field
“Description”), Order number which is automatically generated by the system in case of
new PO but if it is an old PO, it should be entered manually, supplier or vendor code,
receipt date, delivery address etc.
The purchase order has to be authorized. This is done by changing the status to “released”
state to complete the preparation of the purchase order.
For the issue of materials from the stores, MR is made by the shop or shop planning. In
this case, this preparation of MR is shown in fig: 5.22 with the menu path:
Inventory  Material Requisition  Material Requisition

FIG 5.22: PREPARATION OF MR ITEMS (viz. consumables, chemicals,
construction material, transport items, electrical/mechanical maintenance
items, lab items, uniform & fuel)

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This MR has fields like order number signifying the requisition order number, customer
name, part number, part description, Quantity due, due date etc.
Sometimes, when the customer is the sister division of HAL, then a Purchase order-IDTO
is made which can be seen in Fig: 5.23 and it follows a menu path:
Purchasing  Purchase Order  Purchase Order

FIG 5.23: CREATION OF IDTO
When the supply comes to the stores, a draft receipt voucher is made which has to be
cleared by the Quality department by inspecting the goods that have arrived. This is done
by taking the menu path as follows:
Purchasing  Receipt  Gate Entry Inspection
This is done by right clicking on the screen and selecting the option “Inspect “. If some
items are to be rejected, then the option “Material Review Board  Create” is chosen by
right clicking on the screen as can be seen from the fig: 5.24 and the details like the MRB
Quantity, the qty to be Rejected, the scrap Reason etc are entered.

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FIG 5.24: QUALITY CLEARANCE OF DRAFT RECEIPT VOUCHER
After the quality clearance of draft receipt voucher; a gate entry is made against invoice
for the preparation of new receipt voucher. Then the material along with the printed
document is sent to IGI for the further activity.
The RV by using the following menu path; also shown in fig: 5.25 is made:
Purchasing  Receipt  Purchase Order Receipt


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Some of the parameters that are entered are Order No, Purchase Order No, Status, No. of
inspections, part number, part description etc. The printed RV is shown in the Appendix.

FIG 5.25: RECEIPT OF RECEIPT VOUCHER (RV)


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5.3 MAINTENANCE AND REPAIR OVERHAUL (MRO)
The maintenance and repair overhaul of the manufactured items is also taken care
of by the company. The company gets various annual maintenance contracts from
customers which forms an essential part of its after sales service. The customer can ask
for normal servicing of the equipments or for repair of faulty equipments and overhauling
of aircrafts. The types of repair that can be required by the customers are the Medium
Repair (MR) where just the servicing of the equipment is done, Capital Repair (CR)
where major repair has to be done by replacement of the mandatory parts and the product
is almost made into a new one and Request Repair (RR) which is similar to the Capital
Repair [5].
The customer complaints are sent to the marketing department; which then forwards them
to the Customer Services Department (CSD) where these complaints are taken care of.
The customers can either be external like Indian Air Force, Army etc or internal
customers like the other sister divisions of the company. The customer first carries out an
initial survey to find out the defective items and makes a defective investigation report
(DIR). Following this, the defective items are removed from the aircraft and a premature
withdrawal report is made. Then these items, along with a snag report are sent for repair
by the customers.
Once, these items reach for repair; they are sent to the stores and CSD creates three
documents namely work order, customer order and purchase order. Work order is used
for the realization of the mutually accepted amount from the customers; customer order is
for the identification of different customers and the purchase order is for inducting the
product into the company for repair. These three orders are handed over to the shop
planning and a shop order is made; giving directions of the operations to be done. The
shop order along with the items is then sent to the shop where the repair work is carried
out. The rejections/rework has to be raised by the shop. Rework is when the faulty
material is repaired and rejections are when the material has to be replaced for the item to
function properly. If there are rejections, then the Quality Control Department (QC) has
to approve those rejections and after their approval; the Material Control Department

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(MC) is notified about the requirement of the new items. The MC reserves the required
items for that particular shop order. Following this, a pick list and load list is made; just
as is done for manufacturing items, for moving the items from the stores to the shop.
Hence, MC provides the items required by the shop to carry out its repair activity and
when the repair work is completed, the items are sent back to the stores and a notification
is sent to the CSD. The CSD then makes a dispatch order (DO) and sends to the packing
department. From packing section, the product is sent to the customer along with a
Dispatch Advice (DA).
The above mentioned flow of MRO activities is shown in the form of a flow chart in fig:
5.26

FIG 5.26: MRO PROCESS

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ManufacturingMRO.exe is the executable file for the MRO projects using IFS systems.
When the items reach the stores for repair, the details of the part have to be entered into
the system. These details include the part number, part description, serial number, owner
name, manufacturer details and various others as shown below in fig: 5.27. If the Current
Position field is “In Inventory” and the Operation Condition field is ‘Non Operational’; it
signifies that the Part is in the division and but is currently not Operational and if the
current position is “in facility”; it means that the part has not been inducted into the
division as yet. Operation status as “planned for operation” signifies that the operations
are planned but not started yet. After this, a work order, customer order and purchase
order has to be made by the CSD department.

FIG 5.27: SERIAL STRUCTURE INFO

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The shop order that is made by shop planning with the detailed operations is shown in
fig: 5.28. Different tabs as can be seen are used to enter the material required, operation
tools, operations etc.
As mentioned earlier, in case of rejections; the QC has to approve it and make an
inspection memo; after which the MC reserves the material; followed by pick list and
load list preparation; as is done for manufactured products. Then, a DO and DA is made
and the repaired items are sent to the customers.

FIG 5.28: MRO SHOP ORDER

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6. ANALYSIS OF THE MARKETING ACTIVITIES AT
HAL
Basically, three departments namely Marketing, Planning and Customer services
Departments handle the customer queries and complaints. The company and it various
divisions usually deal with both external and internal customers. External customers are
those who place the orders directly to a particular division for certain equipments needed.
For example, if a customer gives the order for purchase of avionics or electronic
equipments directly with the Hyderabad division, then they are external customers and it
is the Marketing department of the division that deals with such customers.
Internal customers are the sister divisions of the company. The customers in this case,
place the orders with the corporate office in Bangalore and in turn the Bangalore division
places internal orders to its sister divisions for the manufacture of the equipments
required. Such orders received by the division like Hyderabad from its sister divisions are
referred to as Inter-Division Transfer Orders (IDTO) and are dealt with by the planning
department.
Apart from these, there is a customer services department (CSD) that handles customer
complaints, after sales service like maintenance, repair and overhaul etc. The annual
maintenance contracts (AMC) received by the company is an example of the functions
handled by the CSD.
The sequence of activities followed by the marketing department is explained here with
the help of a flow chart as shown in fig: 6.1. Firstly, the activities prior to receiving
customer orders are described below. The whole process starts with regular Command
conferences, production reviews, conferences of armed forces, air shows etc that are held
by potential customers like IAF, Navy, Army, Coast Guard, DRDL, DGCA, etc and HAL
utilizes this opportunity by participating in these conferences and reviews to present its
products by way of seminars, presentations, displays, exhibitions etc. Based on the

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feedbacks and the queries received from the customers, HAL marketing or planning
departments analyzes them in the following wayIf the customer wants to purchase the similar or equivalent products that are available in
HAL, then the products are re-engineered according to the technical specifications of the
customer by the SLRDC or Design department. Following this, a technical bid is raised
by HAL and if it is accepted by the customer, then quotations are made to compete for
the customer orders. If not, then renegotiations of technical proposals take place between
the company and the customer till the proposal is finally acceptable to the customer.
If the product that the customer needs are not equivalent or similar to those already
available with HAL, but the product is from the same field, then HAL searches for other
companies that are masters in making those particular products for the purpose of Joint
ventures (JV’s) or Transfer of Technology (ToT). After this, a joint technical proposal is
submitted to the customer; which if accepted by the customer, a contract is undertaken
between HAL and the other party for JV or ToT. Following this, quotations are made for
the customer orders, which if accepted; then the order is placed but if the technical
proposal is not accepted by the customer, then renegotiations of these technical proposals
as mentioned before have to take place till they are acceptable to both the customer and
HAL.
Once the technical proposal is accepted, then another sequence of activities as listed
below is to be followed as shown in fig: 6.2.
 A request for quotation (RFQ) by the customer is made
 The marketing department has to perform this task of making the quotation.
 After the quotation is submitted, the customer is bound to have queries on
technical and commercial lines; which are clarified by the marketing people.
 Sometimes, if needed, price negotiations are also held.
 Then, a formal customer order is received.
 Once, the customer order is placed; it has to be approved by all the concerned.
 Verification of the received customer order by marketing in association with other
departments like finance and planning is done to ensure that there is no ambiguity

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and the terms and conditions are in accordance with those that were mutually
agreed by the two parties.
 Once the verification process is complete, an acknowledgement of the customer
order is sent to customer.
 Also, an invoice is made by the finance department for the advance payments as
agreed upon and is sent to the customer.
 The customer order consists of all the details regarding the customer, terms of
payment etc; so to make it simpler and for other departments to understand easily;
a sale order is made which contains only the list of items to be manufactured or
repaired and the date of their delivery.
 The activities that follow like the procurement of material, launching of material
to the shop, manufacturing processes, scheduling activities etc; should be
monitored by the marketing department.
 A monthly or periodical report has to be given to the customer regarding the
progress of the orders placed.
 In case of any delay in the progress, an internal review is done by the departments
and corrective measures are employed. Delay can occur as a result of events and
occurrences beyond the control of HAL; war(whether declared or not), blockade,
revolution, invasion, insurrection, riots, civil commotion, sabotage, supply
embargo by vendor’s country, strike and lockout at HAL or it’s vendors,
epidemics , earthquakes, fire, flood and any other natural calamity etc.
 Once the manufacturing activity is completed at the shop, a finished goods report
(FGR) is sent to the marketing department.
 Based on the FGR, the dispatch order (DO) is sent by marketing to the stores for
the dispatch of products.
 Once the packing activity is over and the items are ready for dispatch, a dispatch
advice (DA) is made and sent along with the items to the customer.
Note: If the customers are taking products for the first time; then customer feedback is
taken as it may happen sometimes that the customer requires changes in the products
after use. In that case, the products are sent back for modifications. If this implies much
financial implications, then again prices are to be negotiated.

Page 68

FIG 6.1: FLOW CHART SHOWING MARKETING ACTIVITIES

Page 69

FIG 6.2: ACTIVITIES AFTER RECEIVING THE RFQ


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6.1 PRODUCTION TOOLS USED BY HAL
Marketing people are responsible for the creation of customer orders as well as for the
final dispatch of products to the customers. This activity is monitored and carried out
with the help of IFS systems using Distribution.exe; an executable file used by marketing
people for their activities.
Apart from dealing with customers, it is also the sole responsibility of the marketing
department to communicate to rest of the departments about the customer order. This is
done by the process of “Customer order creation” in the IFS screen.
After this, manual reservation of parts for that particular customer order is done and when
the order is ready for dispatch, a dispatch order (DO) and dispatch advice (DA) is made.
The creation of customer order requires the creation of a database containing all the
details of the customer like general details, address, communication methods, invoice
details, order details etc; as shown in fig: 6.3 and 6.4.

FIG 6.3: NEW CUSTOMER CREATION –GENERAL INFORMATION

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FIG 6.4: NEW CUSTOMER CREATION – ADDRESS INFO
With these details, the New Customer is created in the data base for further processing.
Customer Order Creation Process
Customer Order is a document, which is used for the creation of sales order from the
customer.
The customer order details like delivery date, customer details, delivery address, sales
part no, sales quantity, price in INR etc; are entered in the screen as shown in fig: 6.5.
After entering these details, a customer order number is automatically generated by the
system. This order number is further used to prepare a sale order. A sale order is made for
the internal use of the company. It specifies the parts to be produced and their date of
delivery to the customer. This sale order is easier to comprehend than the customer order.


Page 72

FIG 6.5: CUSTOMER ORDER CREATION
At this point, the status of the customer order as can be seen is “planned” state but as this
status should be changed to “released” state for further processing. To do this, the
customer header is right-clicked and the status is changed. Once the status is changed, the
creation of customer order is complete.
Reservation against Customer Order:
After Releasing the Customer Order, the Quantity has to be reserved against the
Customer Order. It is reserved through Manual Reservations; which means that the
option “Make Manual Reservation” is selected by right-clicking on the customer order
number. The Screen in fig: 6.6 displays the same. After this, the quantity to be reserved


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against the customer order is entered. The status of the customer order now changes to
“Reserved” state.

FIG 6.6: MANUAL RESERVATIONS
After this, as mentioned earlier through flow charts; the marketing should to be update
with the progress made in the projects for giving a review to the customers on a continual
basis. Once the production activity is complete and the goods are ready for dispatch to the
customers, a DO and DA has to be made which is done as follows:
Dispatch Order Preparation
The DO preparation requires the completion of several production related steps in the
system to proceed. When the below steps are finished, only then can a DO be made.


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1. Creation of Pick List
After the required quantity has been reserved, the Quantity has to be picked from the
Storage Location for Delivery. For this, the concerned department responsible for
generating the order creates the Pick List. Hence, pick list should have been created to
advance for DO preparation.
2. Creation of Load List
The Items are delivered with the help of Load List creation activity. Customer order lines
to be delivered are attached to the load list and the same is delivered. Load List is created
by the concerned departments responsible for delivery.
3. Creation of report picking
After the creation of load list, report picking has to be done.
4. Prepare Load Id
After the Report Picking activity is over, the actual quantity loaded is entered. This
completes the creation of dispatch order. Here, the status of the load list is changed from
“created” to “prepare” state. This DO is printed and a copy is sent to the packing stores
for delivery related activities.
5. Q423 Generation
If the customer is a defense customer especially Indian Air Force, then the Q423 tab gets
highlighted. Q423 is a type of report generated after inspection of the finished goods by
the customer himself. This report is made by the CRI officer (Chief Resident Inspector);
a Central Government Officer; who is usually stationed at the company site for
inspection.
The path to be followed for the creation of pick list is as follows:
Customer Order  Reserve Customer Order  Create Pick List for Customer
Order.


Page 75

The pick list is created by right-clicking and selecting the “create pick list” option as
shown in fig: 6.7. Following this, a pick list number is generated on the screen
automatically.

. FIG 6.7: PICKLIST CREATION

For creation of load list, the path to be followed is as follows:
Customer Orders  Load List  Customer Order Load List.
A load list number is auto generated. To connect to the load list, the option “Connect to
the load list” is selected by right-clicking on the screen as shown in the fig: 6.8.


Page 76

FIG 6.8: CONNECTING TO THE LOAD LIST
For report picking, the screen as shown in fig: 6.9 by following the path given below is to
be used:

Customer order  Report picking  Report picking with difference

FIG 6.9: REPORT PICKING

Page 77

After the Report Picking activity is over then we go to the Load List for this pick list and
then the actual qty loaded is entered as follows -

FIG 6.10: LOAD LIST – ACTUAL QTY LOADED
Now, the status of load list has to be changed to “Prepare” state as in fig: 6.10. Q423
report is then generated if required by giving the details as shown in fig: 6.11. The
Dispatch Order is printed after this. (DO in appendix)

FIG 6.11: Q423 GENERATION

Page 78

Dispatch Advice Preparation
After DO, a Dispatch Advice is prepared by the packing stores for the customers. As
Load List is used for shipping the materials, when Packing stores receive the Dispatch
Order/Pick list, they need to query for the Load Id on the report and open the Load List.
After the Load List opens up, the Screen shows the data as in fig: 6.12.

FIG 6.12: CUSTOMER ORDER LOAD LIST
Here, there are three stages in the preparation of Load Id which are as follows:
1. Release Load Id
Now, by selecting General Tab, the DA No, DA Date, Gate Pass No and Gate
Pass Date in the General tab as shown below in fig: 6.13 are entered.


Page 79

FIG 6.13: DA PREPARATION
Then, the status is changed to “released” as in fig: 6.14.

FIG 6.14: RELEASING LOAD LIST

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2. Inspect Load Id
Now this “released” state has to be changed to “inspected” state after matching physical
items with the system data availability; which means that the field containing the “actual
quantity loaded” in the system should be same as the physical quantity. After this, the
state is changed as shown in the fig: 6.15 by right-clicking and selecting the option of
“inspect”.

FIG 6.15: INSPECTION OF LOAD LIST
3. Deliver Load Id
Load list delivery should be done once the items are dispatched from Shipping and the
process remains same for all the type of orders. Before proceeding further, it should be
seen that the fields of “Qty to deliver “and “actual qty loaded” on the screen contain the
same values. Then, the option “deliver load list with differences” is selected to deliver the
load Id.

Page 81

Now, the system prompts as shown in fig: 6.16.

FIG 6.16: DELIVERING THE LOAD LIST
After this, the load list is delivered and thus, the status changes to “delivered” state. Now,
the DA as attached in the Appendix is printed and is sent to the customer along with the
products.


Page 82

7. INTRODUCTION TO 5kW HF TX
Each system of 5kW HF TX System ST-5000 as shown in Fig: 7.1 is composed of:
 A Line Flattener ATU-5000
 Set of interconnecting Cables.
 Telephone Interface unit RT-292
 Data Modem M-4000
Description of ST-5000
5 kW Solid State HF Transmitter was originally designed and developed by SELEX
COMMUNICATIONS S.p.A. The 5 kW HF Transmitter ST-5000 is a recent addition to
the family of HF radio-communication equipment developed to meet the new standards
of performance required by the use of HF radios in modern, digital communication
systems. The company had started the development of a new family of HF
transmitter/receivers for meeting the present requirements .The all-solid-state 5kW HF
Transmitter is the most recent achievement of the company and the technology was
acquired from SELEX COMMUNICATIONS S.p.A. by the process of ToT.
Transmission of high- speed data and facsimile is provided by the ST-5000 in addition to
conventional voice and low speed teletype communications. Reliable operation over the
HF channel is achieved by use of adaptive communication techniques conforming to
internationally accepted standards. Control is made simple by an interactive Manmachine interface which requires little skill and training. The modular design of the
transmitter at both software and hardware level allows adaptation of the performance to
specific custom requirements and adoption of optional functions. Versatile operation and
flexible architecture combined with robust, compact and light weight construction make
the ST-5000 suitable for defence and defence-type applications in ground fixed and semifixed platforms. Automatic operation and remote control/monitoring facilities allow
unattended service of the ST-5000 in remote installations from the user positions.


Page 83

FIG 7.1:

5 KW TRANSMITTER ST-5000


Page 84

Main Features
The ST-5000 is a multipurpose versatile HF transmitter capable to supporting diversified
user requirements in a broad range of operating conditions as:
 High data operation to support data traffic in a telematic environment. This can
be achieved by provision of an optional embedded modem or by an external
modem.
 Capability to operate in a collocated mode with other HF equipment by using the
optional embedded post-selector filter module.
 Compatibility with standard voice/data encryption devices.
 Remote control of the operating functions over a dedicated interface. A dedicated
control panel is available for local control.
 A software copy of the Human Computer interface (HCI) is available to integrate
in a centralized management the same functionality locally available. This
simplifies integration of the ST-5000 in a higher level communication system as
it allows coordination of the transmitter operation by the system management
function.
 Interface to a telephone network for integrated radio/wire operation.
 Automatic Link Establishment (ALE) operation for reliable communication over
the HF channel can be provided either in association with an external receiver or
built-in receiving function. The optional ALE processor automatically selects the
best frequency for the desired link and adaptively changes the operating
frequency in case of variations of the propagation conditions.
ATU-5000 Description
The 5kW line flattener model ATU-5000 shown in Fig: 7.2 is a recent addition to
the new family of HF equipment developed by MSC to meet the tuning requirements of
HF Transmitters.
In particular the ATU-5000 is designed to be interfaced with the new fully solid state
5kW HF Transmitter ST-5000.


Page 85

The tuning is performed in an automatic manner and is controlled by the associated Radio
via control bus.

FIG 7.2: LINE FLATTENER ATU-5000


Page 86

8. ANALYSIS OF THE QUOTATION
The Quotation that is made as part of this project work is for the 5kW HF TX described
above; based on the requirements of its customers; which is Bharat Electricals Limited
(BEL). As Army and Coast Guard which were earlier identified as potential customers
need them from next year and BEL having an urgent need for these equipments; this
Quotation is made for BEL. BEL has been entrusted with the task of setting up
communication centers at the eastern and western coast of the country to tighten the
security across coastal areas; for which it needs the 5kW equipments and so, it has
already placed a request for Quotation (RFQ) for these sets. Hence, according to their
requirement of 10 sets in the coming year, a quotation as attached in Annexure-2 is made
for an order of 10 sets.
To make this quotation, various manufacturing costs are considered. The raw material
and labor costs are the main inputs that are used in the making of this particular quotation
[6].
Material costs
The material that is obtained is either indigenous or imported and the estimated costs of
procuring the raw material used in the manufacture of this communication equipment are
the material costs. These also include the costs of any other bought out items.
The material costs are given by the Material Control and Purchase departments.
Labor costs
The labor put in by the workforce for the manufacture of the equipment is to be
considered. So, the labor hours and the labor rate which directly affect the productivity
and efficiency of the factory are included as labor costs. The labor cost is calculated by
taking an efficiency of 80% using the formulaLabor cost = (Labor hours * Labor rate)/ Efficiency of the company


Page 87

Other costs
Other costs include the freight & insurance costs, warranty costs and packing &
forwarding costs. The freight & insurance costs are included for the material that is used
in the manufacturing processes. These costs take care of the damages (if any) that are
caused to the materials. It is considered to be 2% of the total material cost and includes
imported as well as indigenous materials. Rejection costs at 3% of material cost are taken
to include the costs that arise due to operator error or infant mortality of the components.
The warranty costs are 5% of the total manufacturing costs as per the standard norms
followed by HAL. These take care of all the defects that can occur in the items after
delivery to the customer within the warranty period. Packing & forwarding costs are
included for the shipment of finished goods to the customer and are charged at 2%.
A profit margin at 10% above the manufacturing costs is taken. This is the amount that
the company expects to gain from the customer order.
Apart from the above mentioned costs, a negotiation margin of 10% is maintained. The
negotiation margin which comes to about 9.2 lakhs is negotiable. The man hours
considered for the 5kW HF TX sets are 2179.85. These man hours that are considered are
based on the technical estimates done by the MSD (Management Services Department)
and similar inputs given by OEM. However, these can be revised downwards to a
maximum of up to 1500 man hours. This is done through outsourcing of some of the
activities or by using contract workers. The labor rate is fixed at Rs.1418 per hour
according the company policies of wage revisions etc; but the same can be reduced to a
great extent by using contractual workers or by outsourcing. Also, it helps in the
maintaining the efficiency of the factory even when the workers are not available due to
various reasons like strikes, association meetings (Hindi, sports etc), union elections etc.
Hence, if 1500 man hours are considered for production; the labor cost decreases to 26.6
lakhs from 38.6 lakhs as can be seen from the attached working sheet in Annexure-2.
This is a reduction of about 12 lakhs. Hence, if both negotiation margin and labor costs
are considered, then even in the worst case; the final selling price can be reduced by 21


Page 88

lakhs but even now, the new selling price of 80 lakhs approximately will still be
profitable and thus, should be acceptable to the company.
Certain price escalations are mentioned in the terms and conditions of the quotation, if
the supply order is deferred. In such cases, a new quotation is made after the order
validity period finishes; which accounts for these price escalations. The material
escalation at 3% per annum and man hour escalation of 5% per annum for a period of 1
year after the validity period is taken.
If the customer wants some price negotiations; then a price negotiation committee is set
by HAL which includes members from various departments like marketing, planning,
finance etc and a meeting is held between the customer and HAL where price
negotiations take place and a final price which is acceptable to both the parties is finally
taken as the selling price.
Considering the prices of the competitors and the costs in the year 2000, when the order
for 5kW sets was made by Navy; the benchmarking price was set at 57 lakhs. Taking the
escalations in prices into account; the price that is obtained is competitive enough to get
the order from the customer [7].


Page 89

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