Independent Purchase department

why do we need separate Material management department in Indian Railways?

It is a question often asked in railways. Why engineering departments are not allowed to purchase for their requirement. Argument put forward is that Stores department introduces unnecessary red tape. Then why separate department?
Let us first look at other industries. Do they have material management department?
Answer is unambiguous YES. All private sector and even public sectors like ONGC, NTPC , SAIL , Foreign railways do have separate Material Management department. It is called material management department in India and Procurement department abroad. All business are administered by coordinating an integrating six functions:

1. Creation of idea or design function: importance is less when product is evolved or developed.
2. Finance
3. Personnel
4. Purchasing: acquisition of required material, services and equipment.
5. Manufacturing/operation: transformation of material into economic goods or services.
6. Distribution: marketing and selling of goods/services produced.

Specification setting

A common problem in public procurement relates to defining the product/service requirements in tenders. It is done in two ways-

a) Organisations having strong engineering departments often design the products in house and invite tenders for manufacture/construction of these designs. E.g. in-house design of bridge and inviting tenders for its construction.

b) Organisation with strong managements set out output/functional parameters from a product/service e.g tender for a toll bridge.

Although, both of these methods may have their inherent advantages, within present setup of government departments, latter is being preferred over the latter because of following reasons:

Eligibility criteria in Procurement

Public procurement has some unique features which makes it different from personal purchase and private procurement which are

1. Providing equal opportunity,
2. Transparency in decision making
3. Declaring selection criteria in advance to all bidders
Which means that while private procurement is intended to get best offers by holding multiple rounds of negotiation with different bidders. It involves flexible selection criteria which are often changed to suit needs of private organisation/ individual. Therefore specifications for procurement are not required to be firmly set before inviting tenders/offers. This is not so in public procurement.

Therefore, lot of home work is required in public procurement at specification setting stage so that tender bids are as per requirement of public organisation. Many times, we (procurement officials) get complaints from the users/consumers that materials/services purchased are of inferior quality and decision is alleged to be made on basis of L1 (financially lowest) offer. But procurement officers claim that they have selected the lowest offer meeting tender specifications. This leads us to the problem of specification setting/defining eligibility criteria...

Need of IRS conditions of contract for service agreements

Outsourcing activity has increased dramatically on Indian Railways. Procurement at Indian railways is shifting from purchase of simple raw materials like Steel, coal etc to more and more sophisticated parts. This is result of reduction in inhouse manufacturing at Railway workshops and sheds. During recent times, providing services like installations, operation are also being outsourced due to advancement of expertise in private sector and reduction in manpower in Indian Railways. For example, laying of cables is also getting outsourced apart form buying of cables.

In these situations, a need is felt for evolving IRS conditions of contract catering to both supply and service agreements so that there is no requirement of multiple contracts for single works.