Managed Sourcing Service for the Steel Industryw3.mjunction.in/uploadfile/menufiles/Anirban...

Managed Sourcing Service for the Steel Industry

bymjunction services limited

Anirban Sarkar

Monday, March 14, 2011

Agenda

• Imperatives of the Steel Industry today

• Understanding the indirect buy

• About buyjunction

• Sharing our experience

2 Monday, March 14, 2011

Current Market Scenario in Steel IndustryCurrent Market Scenario in Steel Industry


• Global Crude Steel Production is back on Upswing:•

1. Annual Global production has registered growth of 15 % till Dec’10 touching 1414 M against 2009 annual production of 1229 MT.

2. China alone has achieved a production of 622 MT for calendar year 2010.

3. Significant production rise witnessed by other leading steel producing countries including Japan, North America, EU amongst others .

4. Present production capacity of India is 70MT with target of 120MT by end of year 2012.

• Rise in Production Trend Triggers Steady Rise in Raw Material Price:

1. Chinese import prices has gone up from $104.5/t in Dec 09 to $ 190 /t on Jan’11.

2. Export price of hard coking coal has witnessed steady rise from East Australian ports as from $145/t FOB (Average price calendar year’09) to $219 /t (Average price calendar year’10) and further to $ 242/t in Jan’11.

3. Coal India has increased Coal prices in Feb-11 which impacts A & B Grade Coal prices by 115% and C, D & E Grades by 30%.

4. Scrap price in China has seen rise from $354/t (incl. VAT) in May’09 to above $480 /t in Jan’11.

(*Source: Steelonnet.com, Asian Metal, MJ reports, SBB)

Current Market Scenario in Steel IndustryCurrent Market Scenario in Steel Industry

Rise in Finished Product Price is not Significant despite Raw Material Price Hike

-The rise in global steel prices post the meltdown is not substantial to pass on the burden of raw material price hike.

-Price rise could not be sustained as demand remained relatively poor, mainly in Flat Products causing significant pressure on margin and profitability.

Existing Challenges of The Steel Industry

• No infrastructure revamp is planned in view of the expected surge in Imports as country hopes to build up production capacity 120 mt by 2012-13.

• None of the Greenfield projects have set off due to land issues thus capping the capacity increase. • Domestic steel makers continue to depend on imported coking coal.• There is relatively less control of raw material price as well as product price which is determined in the

international market.

So how do you protect your margins and continue to grow in these tough conditions?


Compelling changesCompelling changes

Learn more about your indirect buys and renew your strategy.

Streamline your supply chain processes.

Digitize your procurement workflow.

Increase contract coverage for your revenue purchase

Focus and deploy more resources on your direct buys.


Agenda






Identifying your indirect buyIdentifying your indirect buy

Strategic to Buyer

Procurem

ent S

pend

High

Efficient Buying

Operational ‐ Transactional

• Reduce Cycle Time

• Streamline Resources

• Digitize Documentation

• Reduce Sourcing Costs

Initialize Migrate

Strategic & Project

• Knowledge Based Buying

• New Vendor Discovery

• Material Cost ReductionInitialize Migrate

Knowledge Buying

Strategic & Project

• Knowledge Based Buying

• New Vendor Discovery

• Material Cost ReductionInitialize Migrate

Full Source

Efficient Buying

High

Low

Low

7Monday, March 14, 2011

Indirect Spend in Steel Companies Indirect Spend in Steel Companies

Pumps

MRO Expenses

Power Transmission

Chemicals& Lubes

FluidPower

Filtrations

HVAC &DG

ElectricalAccessories

Electronics &Lab Supplies

Pipes, Valves& Fittings

SafetySupplies

Hardware

ConveyorBelting

IndustrialSupplies

BuildingSupplies

OEM SpareParts

Mobile Equipment

Services

Janitorial

Yards/Grounds

Security

MachineRepair

HVAC, DGMaintenance

Roofing

Machining& Fabrication

Logistics &Handling

WasteDisposal

Environment

Temp Labour& Contractor

Packaging&

Unitization

Flooring &Painting

TelecomExpenses

IT Services

Travel


Indirect Spend is a Key Consideration Indirect Spend is a Key Consideration

Constitutes ~ 30 ‐ 40 % of the total spend of an organization.

Off contract buying can be as high as 50%

It is significant in size. For an integrated steel company, indirect spend is often

Rs. 1,000+ Crores (200 mill USD +) per annum.

It is on an increasing trend as companies outsource more & more maintenance

services.

Accounts for ~ 70 – 90 % of all POs & invoices processed.

Surprisingly easy to achieve savings ( low hanging fruits).


Key Challenges & Mitigation Strategies Adopted by Steel CompanieKey Challenges & Mitigation Strategies Adopted by Steel Companiess

Key Challenges in Indirect Spend Management Mitigation Strategies Adopted

Huge variety of materials & supplies

Difficult to build procurement competency in

such a large variety of materials & supplies

Day to day management takes up large

bandwidth of procurement

Lack of indirect spend visibility

Low churn among suppliers

Challenge of managing cost, quality &

delivery

Planning

1. Understanding the items you buy.

2. Form top level strategy

Technology adoption

1. Spend Management

2. e-Procurement workflow

Actual execution

1. Equip your procurement team.

2. Adopt Managed Sourcing

3. Increase contracts in place

4. Reduce off contract buying

5. Manage spot buying effectively.


Evaluation of Managed Services ProvidersEvaluation of Managed Services Providers

1. Expertise: Does the potential partner have category expertise in the categories to

be outsourced?

2. Technology: Can the service provider leverage technology to automate

Procurement process?

3. Supplier Network: Will the service provider be able to increase or decrease the

number of suppliers by category?

4. Savings: Can the service provider sustain the savings over time ?

5. References: Does the potential service provider have adequate references ?


Agenda






Year on Year Growth of Transactional Value at buyjunction

Selected Clientele Ferrous & Non-Ferrous:TATA Steel & it’s SBU’sJindal Steel & Power Limited (JSPL)Hindalco (Aditya Birla Group)SAIL (All Plants & Projects)Monnet Ispat

Power: TATA Power, NDPL, CESCDefense: Ordnance Factory Board

Industrial, Heavy Engineering:Garden Reach ShipbuildersBridge & Roof CompanySimplex Infrastructure LimitedPhillips Carbon Black Limited (RPG)

Telecom: TATA TeleservicesTATA Communication

Cement: Dalmia Cement, Birla CorpFMCG: Emami, ITC, Berger

Fertilizers & Chemicals:TATA Chemicals, Grasim Industries

Reverse Auction

Eprocurement systems

Sour

cing

Pro

cess

Evo

lutio

n

$ 0.14 Bn

$ 0.15 Bn

$ 0.23 Bn

20082003 2004

$ 0.08 Bn

2005 2006 2007

$ 0.58 Bn

Assisted Sourcing

Transaction Value

2009

$ 0.82 Bn

2010

Over USD 3.3 BnCrores worth

of materials and services

sourced online

$ 1.33 Bn

Managed Sourcing

Aggregated Buying


Our sourcing and procurement services

Sl. No. Service Name The need it addresses

1 Online Price Discovery

1. Transparency in Price Discovery.2. Material / Services Cost Reduction3. Reduction in Cycle Time

2 Assisted Sourcing Assist clients in sourcing and procurement in select categories to deliver best value deals for them

3 Managed Services1. Improve procurement related SLA & efficiency.2. Provide transactional support.3. Provide mechanism for spot buys.

4 Eprocurement platform

Develop / host / manage eprocurement platform on ASP mode

5 Aggregated Buying Program

Leverage group buying power to finalize rate contract of indirect items for group companies


Agenda






Six Layers of Purchase Management in Managed Sourcing

Requirement Collection and Review

Procurement Budget Formulation

Requirement Finalization

Approve Requirements and Budgets

Monitorand Report

AccountsAcceptOrderRequest

Purchase Management processes

PlanPlan Request

Request Preparation

Request Assessment

Request Approval

Order

Choose Appropriate Vendor(s)

Freeze Terms and Conditions

Release order

Accept

Receive Materials/Services

Verify Conformance to Ordered Requirements

Confirm Receipt

Account

Receive Invoices

Reconcile

Pay Invoice

Input Transaction Data

Monitorand Report

Periodic Reporting & Reviews

Data Analytics

Process Reviews

Identify Corrective & Preventive Actions

Continual Process Improvement

VendorMaster

MaterialMaster

ServiceMaster

ContractMaster


Managed sourcing for a new client

1. 71 % of PRs contribute only 2.62 % of the spend

2. Avg. Cycle time from MPR to placement of PO was 90 days approx

3. The professional acumen of Purchase Officers is not being utilized properly

due time spend in procuring Low-Value High Volume items which are non

Critical and have low impact

4. Large scale reduction in Non-Executive manpower in the last 3 years.

Last 3 years analysis of PRs at a client unit revealed that :

CaseStudy 1

Engagement in a steel company

Status (FY11)

Mechanical Electrical General Services

1. Instruments2. Valves3. PLC Drives & Systems, Encodersand spares4. Motors5. Cables6. Switches7. Wiring Accessories8.Brakes9. Fuses

10. Computer Items11. Telecom

1. Glass Apparatus2. Non-Ferrous Materials3. Clothes & GunnyBags4. Papers5. Sheet Glass Panes6. Door Fittings7. Canteen Utensils

1. Civil Maintenance

2. Mechanical3. Electrical4. Housekeeping5. Cleaning Jobs6. Packaging & Unitization7. Handling &Transportation8. Hiring Jobs9. IT Services

10. Refractory11. Travel12. Gardening

1. Mills Spare2. Hose, Clamps& Accessories3. Blowers & Boosters, Fans4. Couplings5. Rubber Items6. Abrasives, Grinding Wheels7. Industrial Valves8. Screens9. M/c Tools

10. Gear Boxes11. Electrodes12. Oil Seals13. Hydraulics

CaseStudy 2


Process Flow for Managed Sourcing ServicesProcess Flow for Managed Sourcing Services

Create RFQ on suppliers

For offline negotiation

Transmits approved indent along with supplier details

Follow up for quotation

Open quotation

Conduct negotiation

Prepare comparison statement

Give quotation

Design eAuction strategy

Train bidders

Conduct & manage event

Send auction report

Approves and releases order

Get trained in eAuction

Take part in

eAuction

Confirm bid

For online negotiation

Prepare draftorder

Approves newsuppliers

Check indentSuggest new suppliers

CaseStudy 2


Summary and ConclusionSummary and Conclusion

Indirect materials are an important segment of your procurement volume.

Addition of capacity, expertise in procurement workflow processes and

technology adoption is required.

Managed Services is a key enabler for the Steel Industry to evolve and

manage its indirect buys.

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