Industrial Goods Distribution –

Steel Perspective

India Logistics Executive Round Table

- Organised by ISB

Panel Member : Mr. Kalyan Ghosh

: Mr. Gangadhar Rout

3rd – 4th Oct’08

Industry Segments

Companies by Material Companies by Type

Steel
Integrated

Aluminum
Mini – Mill

Copper
Specialty

Brass
Processor/Converter

Wire/Rod/Bar
Service Center

Fabricator

Mining

Foundry
Metals Market - Characteristics

• Environment
• Cyclical demand
• Heavy capital investment
• Products engineered to order
• Long-term relationships with customers
• Long manufacturing lead times
• Increasing responsiveness requirements
• Pressure to cut Inventory costs
• Energy and maintenance intensive
Business Objectives

 The primary driver in metal companies is the need to

keep expensive machinery, particularly in the “hot
end”, running while minimizing inventory and lead-
times in order to be responsive to customers.
 Capacity Utilization - Keep the Machines Running!
 Improving Return on Assets (ROA)
 Improving Customer Service Levels
 Minimize Inventory across the Supply Chain
Metals Industry Supply Chain
 Metals Industry Value Chain

Traders
Suppliers Buyers
Integrated
Mills • Transportation
• Coal
• Iron ore (Steel, Processors
• Scrap Aluminum) • Construction
• Limestone
• Fluxes Distribution • Industrial/
• Alloys Commercial
• Gas Non-Integrated Centers
Fabricators, • Equipment
• Scraps Mills Converters and
• Slabs (Steel, Service Centers
• Hot bands • Energy
Aluminum)
• Equipments
• Spares Parts

Logistics Providers
 Factors driving the business

New Industry Growth Industry Maturing Industry

Cu
Price s
Se tome Cu

bi &
rvic r Se sto

lia lity
y
e rv me

lit
Re ua
Quality & ice r

Q
Reliability

P
Quality &

r ic
e
Reliability Price

Service
Product & Features - Price / Cost
grows in
Primary differentiators become Critical
importance
Industry Challenges for Steel

Fragmented global market place

Prominent boom and bust cycle, due to lumpy nature of
capacity additions

At the beginning of the supply chain; little knowledge of
real demand

Focus on utilization- high fixed cost assets

High inventory levels to maintain reasonable customer
service levels

Production-process focus

Huge spare parts/MRO inventory

Logistics spend is high (7% of sales)
Steel Distribution – A Journey
Pre – 1991:

• Steel majors like TISCO and SAIL followed a distribution model

consisting of huge stockyards spread across the country.
• Around 90% of material was being sent by rail to the stock yards/stock
points
• There was no intermediate post-manufacturing activities being carried
out. All the customer’s demand was being fulfilled from plant itself.
• Basically, these steel plants were set up closer to raw material base.

PLANT Rail (90%) STOCKYARDS Road CUSTOMER

(Re-Rollers)

Road (10%)
Steel Distribution – A Journey
Post – 1991:
• With the entry of automobile & white goods industries, the demand for
flat products increased substantially.
• Western & Northern parts of the country became major consumption
points followed by Southern region.
• 90’s saw the birth of 2nd generation steel plants with flat products (Essar
Steel & Ispat Industries in western zone and JSW in southern zone).
• Over night the supply chain of steel changed. The new industries
demanded
• smaller parcel size
• door delivery
• ready to assembled parts
• This resulted in direct supply to customer’s premises by road vehicles.
2nd generation steel plants started following this model in the initial
phase.
PLANT Road (100%)
CUSTOMER
Steel Distribution – A Journey
Post – 2000 :

• With the growth in automobile & appliances sectors, there was a

paradigm shift from supplier-centric to customer-centric supply chain.
• just-in-time supply (lesser lead time)
• reduction in lead time variability
• vendor managed inventory
• off-the shelf sale (retail sale)
• To meet the challenges, steel manufacturers adopted hub-spoke model
with de-centralised service centres for post-manufacturing processing.
• In other words, a few strategic stock yards and a few steel service
centres
Steel Distribution – A Journey
Post – 2000 :

STOCK YARD
OEM/
PLANT RE-ROLLERS/
TRADERS

STEEL SERVICE
CENTRE (SSC)

RETAIL OUTLET – RETAIL RETAIL

STEEL SERVICE OUTLET CUSTOMER
CENTRE (RO SSC)
Business Objectives – Essar Steel

Increase
Increase profitability
profitability

Increase
Increase market
Increase market
market Customer
share
Customer
share ––– domestic
share domestic
domestic
and
and export
and export
export
Oriented
Oriented SCM
SCM

Increase
Increase asset
asset
efficiency
efficiency
Segment & Product wise Distribution –
Essar Steel

OEM Segment (Auto & Appliances) :

HR (Coil, Sheet, Plate), HRPO (Coil, Sheet)

CRFH Coil, CRCA (Coil, Sheet), GP (Coil, Sheet)

Retail Outlet :

HR (Coil, Sheet, Plate)

CRCA (Coil, Sheet), GP (Coil, Sheet), GC Sheet

Trade & Arisings :

HR (Coil, Sheet, Plate), HRPO (Coil, Sheet)

CRFH Coil, CRCA (Coil, Sheet), GP (Coil, Sheet), GC Sheet

Export :

HR (Coil, Sheet, Plate), HRPO Coil

CRFH Coil, CRCA Coil, GP (Coil, Sheet)

Segment wise Distribution – Essar Steel

Segment wise Distribution (%age)

25.1
6.1 54.0
2.4
12.4

OEM (Hazira+SSC) Retail Outlet (Hazira DSC+RO-SSC)

Group Company MTS/Arisings
Export
Zone wise Distribution
Zone wise distribution - OEM

17
8
76

WEST NORTH SOUTH

Zone wise distribution - Retail

3 5

93

W EST N OR T H SO U T H
Evolution of Supply Chain – Essar Steel

Initially OEM customers & Retail Outlet were being served
directly from Hazira Plant & its Down stream Service Centre.

Subsequently, a few retail hubs were set up (such as VITCO in
Surat, ARK in Pune) to serve retail outlet segment.

The main shortcomings of this model are :

Away from the market/customers

More lead time to serve

Response to change in customer need

Transit damage
Evolution of Supply Chain Strategy –
Essar Steel

I would rather own a Market

than a Mill
Evolution of Supply Chain Strategy –
Essar Steel

Why do we want to own a market ?

“To influence consumption”

Evolution of Supply Chain Strategy –
Essar Steel
I’d rather own a
Market
In the future, power will flow
only to those Companies
who can influence consumption,
and not to the owners of assets.

than a Mill
How to own a market - Hub & Spoke
model for Supply Chain

Essar Steel has gone for hub & spoke model in supply chain to
cater to its OEM & retail customers.

Majority of the mother coils will be routed through Steel Service
Centers (SSC) closer to consumption points (auto, appliance,
construction segments).

In case of retail outlet, coils will be sent from Hazira and/or from
SSC to Retail Outlet Service Centre (RO SSC) closer to retail
market centroids for processing as per market demand.

Each RO SSC will be serving RO in 200-300 km radius wherein
within 24 hr window delivery can be made.
Supply Chain – Essar Steel
• Essar Steel adopted service centre model to cater to the requirements
of OEM/RO customers.
• In Essar, around 10% material is being routed now through SSC, which
is likely to go up to 60%.
• Similarly almost all Retail Outlets are being served directly from the
plant. In the days to come, all RO SSC will be served either from SSCs
or from Hazira Plant
• There is also thinking for having stock points at strategic locations

OEM/
PLANT RE-ROLLERS/
TRADERS
STEEL SERVICE
CENTRE (SSC)

RETAIL OUTLET – RETAIL RETAIL

STEEL SERVICE OUTLET CUSTOMER
CENTRE (RO SSC)
No of warehouses to be set up

Factors Affecting the

Number of Warehouses
– Inventory costs
– Warehousing costs
– Transportation costs
– Cost of lost sales
– Maint of customer
service levels
– Servicing small quantity
buyers
Distribution network – Essar Steel
Major Steel Service Centre (owned by Essar)

Bahadurgarh in north

Talegaon in west

Chennai in south

Retail Outlet Steel Service Centre (RO-SSC)

Company owned 10 RO-SSCs throughout India

Retail Outlets (Hypermarts)

Company owned 70 outlets spread in 15 states

To be increased to 250 depending on requirement
Express marts

Retail Outlet selling points
Hub & Spoke model – What does it mean to
Essar Steel

Customer centric supply

Better control over inventory due to improved forecasting

Postponed differentiation – hold inventory at intermediate
stages

Average inventory holding has gone down from 30 days to 21
days

Ability to provide blanks to seed the market

Creating brand awareness particularly Hypermarts

Reduction in lead time, tending to Just-In-Time supply (from
avg lead of 700 km to 100 km)

Supply of specific width of any length as against pre-decided
length & width
Hub & Spoke model – What does it mean to
Customers

Steel when you need it, where you need it

Pre-despatch inspection to boost your confidence

Performance tracking against world benchmarks

To provide a wide array of steel from India’s 2nd largest flat
producer with the largest range of grades

To develop a relationship to provide you technical support

To provide flexibility in business for you to leverage and take
advantage of

To help you improve your working capital cycle
Managing the Supply Chain of the future
Transformation Skill Set
Integral Management
Management of Cross- functional
From Function
From Function Integral of
Management & Planning
to
to Processes
Processes Materials & Goods
Materials Goods flow
flow Skills to Processes
Focus on
Focus on markets
markets and
and Ability to define
From Products
From Products
to Customers Creation of Customer
Creation Customer measure & manage
to Customers value service requirements

Focus on Key
Focus Key Understand
From Revenue
From Revenue
to
Performance
Performance cost-to-serve and time
to Performance
Performance
drivers of profit
drivers profit based performance

Demand-based
Demand-based
From Inventory
From Inventory
replenishment andand
quick Information System &
to
replenishment
to Information
Information response system Information Technology
quick response system

From Transaction
From Transaction Supply Chain
Supply Chain Relationship mgmt
to
to Relationship
Relationship Partnership
Partnership and win-win Deals
Future …………….

Dare to dream and to fly ….

It is not what we can predict.
But what our imagination can
inspire. For it is our aspirations
that will create our future.

The woods are lovely dark and deep but I have

promises to keep and miles to go before I sleep...
Industrial Goods Distribution – Steel
Perspective

Thank you