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1/1/2019
ABSTRACT
Role of logistics and supply chain in steel industry purse and its role as a major contributor in
value chain is presented here .This case also presents example of Tata Steel’s supply chain and its
management of inbound and outbound logistics in infrastructure constrained environment
.Recent trend in reverse logistics and how it is helping to achieve waste reduction and
environmental-economic processes aimed at reducing consumption of energy and raw materials
by metal manufacturers has also been discussed . key learning with respect to steel industry has
been also discussed and how it is different from other industries. Present overview of steel
industry along with future growth potential further stresses the importance of logistics and supply
chain in steel industry .
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TABLE OF CONTENT
Page no
6. References………………………………………………………………………………………….19
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Fig.1
Increased domestic competition Incumbents and challengers have announced 71 million ton per
annum (MTPA) of steel capacity addition between FY2012 and FY2017 through both brownfield
and greenfield routes. However, there is considerable uncertainty on the actual capacity addition
as many projects are yet to achieve financial closure due to delays or lack of regulatory clearances.
Based bottom-up assessment of the announced capacity additions, projects aggregating to 35
MTPA of crude steel capacity have already achieved financial closure.
Fig 2
Domestic steel demand to remain muted during FY2012–17 on account of a weak macroeconomic
environment The demand for longs is expected to increase by 19 million ton (MT) at a CAGR of 9
percent and for flats by 16 MT at a CAGR of 8 percent between FY2012 and FY2017 (Exhibit 4).
This is due to relatively weaker growth prospects of flats end-user industries (such as automotive
and consumer durables) than those for longs .
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Fig 3
Increased domestic competition Incumbents and challengers have announced 71 million ton per
annum (MTPA) of steel capacity addition between FY2012 and FY2017 through both brownfield
and greenfield routes. However, there is considerable uncertainty on the actual capacity addition
as many projects are yet to achieve financial closure due to delays or lack of regulatory clearances.
Based bottom-up assessment of the announced capacity additions, projects aggregating to 35
MTPA of crude steel capacity have already achieved financial closure. Hence, we expect a
minimum aggregate capacity of 122 MTPA to be commissioned by FY2017(Fig 3) This capacity
addition will lead to two structural changes. First, the concentration in the longs segment will
increase by 5–7 percent in the medium term, deepening the sustainability challenge for secondary
producers. Second, it will shift the current flats-longs capacity split of 50:50 to 60:40 by FY2017, if
all the announced projects are commissioned. As a result, one can expect oversupply in flats and a
capacity shortfall in longs.
In integrated steel plants steel is manufactured from the basic raw materials like iron ore, coking
coal and fluxes like lime stone and dolomite. The main production units are raw material handling
plant, coke ovens, sinter plant, refractory material plant, blast furnace, steel melt shops, light and
medium merchant mills, wire rod mills, medium merchant and structural mills, special bar &
structural mills. In addition to these main production units, there are several auxiliary units like
power plant, engineering shops, oxygen plant, etc.
Hot metal produced at blast furnaces is converted into steel through the process of removing
impurities in the metal by oxidation. This steel is further refined in the secondary refining
facilities provided in the steel melt shop. Blooms are produced at steel melt shop, which are
converted into various finished products like wire rod coils, rebar’s, rounds, structural, squares
etc. in various rolling mills. These products are called as long products used in construction and
infrastructure building and manufacturing sectors.
Due to nature of the activities, a different version of the value chain for
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steel manufacturing sector is developed with five primary activities and six supporting activities.
The shape of the Value Chain for Steel Manufacturing Sector (VACSMS) will be the same as that
of Porter but the difference is in some of the activities and their application. The VACSMS is
shown in Fig-2 and a brief description on each of the activity given in it is as follows:
customer relations management etc. Marketing and Sales activities can be included to primary
activities.
2.1.5. Service after sales
These include commercial terms; quality aspects; delivery aspects; pre/post sales contact;
complaint settlement procedure. Service after sales activities can be included to primary
activities.
2.2. Value Chain - Support activities
Support activities are those activities, not directly involved in the conversion process but support
the primary activities in their functions. These activities are classified as:
2.2.1. Materials Management
2.2.1.1. Vendor Development
These include registration; categorization; performance rating & continuous monitoring;
encouraging local SSI’s; regular interaction with local SSI’s etc.
2.2.1.2. Purchase
These include identifying sources for various materials; selection of suppliers; taking requests
from plant units (indents); processing of indents; procurement of raw materials, components and
parts, machinery and spares, consumables, stationery, servicing; ensure supply of materials etc.
2.2.1.3. Logistics
These include utilization of port facilities; handling of vessels at ports etc.
2.2.1.4. Stores
These include receipt of raw materials at ports and spares & consumables; custody of spares and
consumables; stock control; issue of spares & consumables to various departments; disposal of
non-moving spares & consumables; transport contract; discrepancy receipt & inventory control
etc.
2.2.2. Technology Development
These include quality assurance and technology development (QA&TD); research and
development (R&D); processes automation etc.
2.2.3. Human Resource Management
These include corporate coordination (manpower planning, recruitment, executive establishment,
rules & policies, welfare, parliament cell); Human resources - non works (human resource
development, non works personnel, mines, industrial relations, SC&ST cell, sports); Human
resources - plant (plant personnel); Management services (quality circles, suggestion schemes,
awards, incentive schemes); Corporate social responsibility; Medical; Town administration;
Administration (general administration, law, hospitality, RTI, Liaison Office, Agro Forestry);
Human Resources Development (training, management development, Hindi cell, HR
information systems).
2.2.4. Services Management
These include corporate offices (CMD and Directors’ offices), corporate strategic
management, corporate communications, company affairs, information technology (process
control, materials management system, marketing system, payroll system and financial
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accounting system)
2.2.5. Finance Management
These include treasury management, budgeting, costing, corporate accounts, raw material
accounts, sales finance, operations & general accounts and works accounts, central excise and
insurance, pay sections (payments to present employees i.e. employees on rolls and payments to
retired and expired employees), stores accounts, purchase bills (payments to indigenous and
imported materials), project accounts, mines accounts, internal audit and stock verification.
2.2.6. Projects Management
These include the activities of Design & Engineering for the existing plant and the activities of
Design & Engineering, Project Contracts, Construction and Project Monitoring for plant
expansion.
While railways are the most preferred mode of transportation in India from an
environment point of view, it is wholly owned by the Government, which allocates the
wagons to various agencies in the country. For the raw material segment, Tata Steel is
totally dependent on the Indian Railways for inbound transportation having closed-circuit
rakes running between the captive mines, ports and manufacturing locations. They are one
of the first in the steel industry to capitalize on incentives by the Indian Railways – Special
Freight Train Operator (SFTO) Scheme and long-term tariff contract.
The road conditions are not ideal for transportation of high-end steel products, which have
to travel as far as 1,700 kms from the manufacturing locations to pan-India. Inland
waterways in the country are in the early stages of development. Hence, it is not an open
option at this stage, even though it is the most environment friendly mode.
Therefore, multiple modes of transportation is taken into consideration for the above constraints,
aiming for the best possible delivery compliance and cost while taking utmost care of safety and
the environment.
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In FY 2017-18, Tata Steel imported almost 8.3 Million Tonnes (MnT) of coal from Australia, New
Zealand, and North America, Canada/US and CIS; 4 MnT of fluxes were imported from the Middle
East and Vietnam.
Tata Steel plays a pivotal role in ensuring close co-ordination and planning between
overseas miners, load ports, ship owners, port authorities in India, the Indian Railways and
our plants receiving the raw materials. Tata Steel is one of the first major steel
manufacturers to initiate the deployment of energy-efficient and environment friendly
vessels for ocean transportation.
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Centres
Company distributor owned service centres for last point processing
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Current thinking about supply chain is focused on logistics flows from raw materials to finished
goods, and therefore those processes which primarily lead to interest in creating and developing
supply chain. The global market, technology improvement and sustainability development has
involved new models of supply chain. A new trend in logistics is observed [2]. In recent years, in
the context of sustainable resource management, there is a new concept, that of reverse logistics,
for which there are synonymous terms such as: reverse logistics.
Over the past decade, many of the steel industry studies have been carried out. Most of them
aimed to improve the performance of the industry [10, 11]. However, the results provided by
those papers laid us to an understanding of the supply chain in steel industry. The steel industry
has distinct characteristics that separate it from other industries [12] as follows:
The steel supplier can be classified as a general steel producer who converts steel scrap into
billets, which are then rolled into a variety of steel products. The end user sources their material
from a steel stockholder who performs a break bulk role within the supply chain. They order in
large quantities from the main producers on long lead times and then sell the material in small
quantities on short lead times, according to the customer’s requirements [13, 14].
The world steel industry applies the principles of reduction, reuse and recycling in many ways, in
order to improve the sustainability of the industry.
Reverse logistics is defined as the process of planning, implementing, and controlling the efficient,
cost effective flow of raw materials, in-process inventory, finished goods and related information
from the point of consumption to the point of origin for the purpose of recapturing value or
proper disposal [19]. More precisely, reverse logistics is the process of moving goods from their
typical final destination for the purpose of capturing value, or proper disposal.
Reverse logistics also includes processing returned merchandise due to damage, seasonal
inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs,
hazardous material programs, obsolete equipment disposition, and asset recovery [20]
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In recent years a marked increase in interest in the optimization of logistic processes in support of
various types of recovery value of the products in the phase of postconsumer waste, including
through reuse, regeneration, recycling and processing can be noted. There are 8 types of
recovery/disposal options. Direct reuse/resale, repair, refurbishing, remanufacturing,
cannibalization, recycling, incineration, and landfilling. Each of the product recovery options
involves the collection of used products and components, reprocessing and redistribution.
The strategic objective of waste management planning is the handling of waste in accordance with
the principles of the waste management hierarchy, i.e. firstly the prevention and minimization of
waste generation and to reduce their hazardous properties and, secondly, maximum utilization of
material and energy components of the waste, and where waste cannot be subjected to recovery
processes, to be neutralized.
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Takeaway: The concept of vertical integration can be extended to other industries that depend
heavily on one or two key raw materials. Examples include thermal power, with a key ingredient
of coal; cement, which needs dolomite; and petrochemical, requiring a lot of oil. On the other hand,
vertical integration is not an option for industries such as automotive and consumer goods. It’s
important to have a good understanding of your industry’s structure: One size does not
necessarily fit all.
South Korea-based POSCO, one of the world’s largest steel manufacturers, planned to set up a 12
million-ton facility in Paradip, India—a $12 billion investment. India was chosen as the raw
material source due to its high-quality iron reserves. The plan was to produce primary steel in
India, where the raw materials are cheaper, and transport the semi-finished product to facilities in
Korea—a process known as split integration. The initiative would help POSCO compete more
effectively with its biggest rivals in the Southeast Asian market, although the project has stalled
due to local protests.
Takeaway: The cost of inbound and outbound transportation plays an important role in location.
All factors need to be analyzed in detail before committing to investment. This is especially
important for industries where transport expenses are a significant percentage of the costs of
material, such as metals, mining, cement, and heavy engineering.
Producing only what is needed by the customer or the next workstation is the fundamental
philosophy of Just-in-Time production that revolutionized the manufacturing world in the 1980s.
However, in the metals industry, the upstream supply chain is a part of the continuous process.
For example, in the steel industry, iron ore is formed into different shapes, sizes, and grades of
steel and sent for further processing via different finishing routes. This is referred to as a V-shaped
bill of material, where raw material diverges to multiple end products. To lower inventory and
energy costs, continuous and discrete production must be planned simultaneously and all
alternate finishing routes loaded.
Takeaway: While managing operations with low inventory is an indicator of supply chain
efficiency, the benefits must be balanced against setup costs. In certain cases, it may make sense to
create additional inventory up to a point if shutdown and restarting a particular operation are
prohibitively expensive. This is particularly the case for process industries, including
petrochemicals and metals.
Commodity prices vary based on demand and supply, and some commodities follow standard
boom-and-bust cycles. Recently, for example, coal prices hit the roof, and every steelmaker felt the
sting. Problems arise when the company has to supply finished goods against a contract. While
many contracts have a price variation clause to combat this effect, it often is difficult to pass on
increased prices of raw materials to high-volume customers, and thus higher input costs eat into
profits.
Some metal companies own captive mines to have better control of inputs. However, building
capacities or owning mines during boom periods may result in problems during downturns, when
buying from the outside is the cheaper option. Additionally, some metals companies derive part of
their earnings from financial instruments in order to hedge against price fluctuations.
product and stock keeping unit (SKU) proliferation. Pharmaceuticals, retail, and consumer goods
may carry the highest number of SKUs, but the issue is also significant in the metals industry. In
steel manufacturing, a product can be classified into one of hundreds of grades; rolled into almost
any combination of width, thickness, and length; finished to any number of specifications, such as
60-micron coating or blue in color; and, finally, cut and shaped to any customer specification.
For the steel supply chain, most planning is performed across three horizons:
1. Sales and operations planning. The forecast is made for a horizon of two years at the
aggregated planning level and agreed-upon supply to ensure a product mix that maximizes
contribution per hour on resources.
2. Master planning. This is part of order-based planning across the entire production
network, including upstream, rolling, and finishing, and generally at three months ahead.
This ensures campaign formations, managed inventory levels, running of resources,
productivity, and order commitment.
3. Detailed planning. This piece-based line scheduling, done for the short-term horizon within
the next couple of shifts, keeps the rework and production realities synchronized.
Takeaway: Managing a huge number of end products requires a focused supply chain strategy.
One technique is to build around a supply chain decoupling point, also known as an order
penetration point. This can enable a company to produce intermediate inventory to forecast and
then commit orders for priority customers from this intermediate inventory and finish to order.
Takeaway: Mergers and acquisitions can alter the landscape in terms of new factories,
distribution centers, and stocking points. They may require shifts in effective supply chain
strategies; the questioning of flows, such as which factories should supply which distribution
centers or customers; revisiting stocking norms across the network; and even complete supply
chain redesigns.
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Spot versus contract. Most metals companies prefer to secure the bulk of raw materials from their
own sources or through long-term contracts with key suppliers to protect against price
fluctuations. However, they also may meet some of their requirements through spot auctions,
which can be cheaper in some circumstances. How much to source and from where are important
financial decisions.
Direct versus multi-mode transport. The metals industry suffers high transportation costs for both
raw materials and finished goods. For coal, a major input, the transportation can cost more than
the material itself. For finished goods, companies can use various transport modes, such as ship,
rail, and truck; whereas, on a per-unit cost basis one mode may be cheaper, the total effective cost
must be calculated before making a decision.
Takeaway: Similar trade-offs can be seen in many other industries. For instance, automotive
components suppliers must decide how to allocate between original equipment manufacturing,
which provides volume, or the replacement market, which provides profit. Likewise, a mixture of
long-term contracts and opportunistic buying is employed in many industries; the challenge is to
find the balance that minimizes risk and maximizes profit.
One way that the steel industry continues to lower energy costs is through the use of integrated
steel plants. These facilities contain every operating unit needed to produce steel, including a
power plant, blast furnace, and hot rolling mill, to name just a few. Benefits of integrated plants
include the ability to reuse heat or energy generated in one unit in others and a more efficient
internal use of metal, scrap, and waste.
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Takeaway: As a strategy, green business is reshaping tomorrow’s supply chains. No longer a “nice
to have,” sustainability is a core business function that is changing the way products and
manufacturing processes are designed. Smart supply chain practitioners will keep their eyes and
ears open and continuously evaluate emerging technologies in this area.
Pressure to keep down costs must be carefully managed.
Takeaway: Managing conflicting constraints among different steps of the manufacturing process
requires integrated planning and coordination—a complex task if operations are performed in
different operating units of the same facility. Investment in integrated information systems such
as enterprise resources planning or advanced planning, scheduling, and optimization solutions
can make a real difference.
Simple policies such as storing materials based on customers, standard sizes, stacking height, or
various other rules become greatly important for ensuring smooth operations. One leading steel
company reorganized its logistics structure by setting up a single point person for sales
coordination and logistics and yard management, thereby ensuring goods are stored and
dispatched based on sales priority.
Takeaway: traditional warehousing concepts can be applied to large yards or anywhere material
has to be stacked, stored, and tracked. Industries such as mining and automotive also require
careful yard management and logistics. Warehouse management demands a diverse skill set that
can be extended to many other areas of the supply chain.
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6.References
https://www.tatasteel.com/investors/integrated-report-2017-18/pdf/SupplyChain.pdf REVERSE
LOGISTICS
PROCESSES IN STEEL SUPPLY CHAINS Paweł KUŻDOWICZa , Marcin RELICHb , Anna SANIUKc ,
Helena VIDOVAd , Krzysztof WITKOWSKIe