Domain Supply Chain & Logistics Planning

Name of the Case: Balancing responsiveness and efficiency of Tata Steel supplies to its downstream Tinplate company
India limited
Introduction
Tata steel (TSL) is one of India’s biggest steel manufacturer with capacity of 23Million Ton of HR (Hot rolled) steel which is
meant not only for domestic market but also for exports. Tata steel also have various value enrichment facilities where HR
coils are transformed into:
1. Tubes
2. Sheets: a) HR b) CR c) Galvanized d) Corrugated
3. Tinplate
4. Pickled coils
Value addition

TSL HR
Coils
Direct to
customers

Steel SKU: SKU or stock keeping unit are categorized on basis of three categories
1. Grade: Depends on end application for customer which further depend on value addition at Tata steel or change in
composition of steel based on property requirement
2. Width: Width of sheet/coil required by customer
3. Thickness: Thickness of Steel coil required

A customer may take single or several SKU based on requirement of its end customer. One such customer for TSL is Tinplate
Company of India Limited (TCIL) which sources .45MT of HR steel from TSL per annum. TCIL being a subsidiary of Tata Group,
converts steel coil to tin plates which are used in packaging industry for packing processed food, battery cover, edible oil can,
paints & pesticide container. TCIL has 60% market share in packaging industry in India and rely on TSL for its raw material
requirement.
Background

TCIL is supplied material either directly from TSL mill or material is taken to slitting centers of TSL where coils are trimmed
and supplied to customers (Since TSL mills cant supply coils of width lower than 900mm, coils are rolled of wider width which
are trimmed to <900mm requirement and remaining portion is given for tube making). Supply chain diagram is provided
below:

Direct

TSL
1
TCIL
Trimming 2

3
Product Tab provides the list of SKU taken by TCIL, Facilities tab enlist capabilities of all the facilities and dispatch tab provides
dispatch capabilities and constraints.

Product Tab

Grade Width Thickness

TC01 800/915/995/1010/1040 2
TC03 740/780/820/915/1040 1.8/2/2.2
TC04 740/800/915/995/1010/1040 1.8/2/2.2/2.4
TC05 800/915/1040 1.8/2
TC06 740/800/915 1.8/2/2.3

Facilities Tab

Mill SPC Capacity Grade Width Thickness

Mill 1 Slitter 1 8000 TC01 Any Any
Slitter 2 6000-7000 TC01 Any >=2
Direct 0
Mill 2 Direct 10000-12000 All exc. TC01 >900 Any
Slitter 1 4000-8000 All exc. TC01 Any Any
Slitter 3 2000-3000 All exc. TC01 Any >=1.8
Slitter 4 4000-6000 All exc. TC01 Any >=2

Delivery Tab

Delivery Terms Width

Direct FOB
Slitter Ex works
Slitter overall supply Max 24000
Slitter Supply constant: /30 in month
Direct Opportunity based
S&OP process 30 days horizon
TCIL unloading cap. 1200T/day

Current Process:

15 days prior to month start, TCIL provides the requirement. By 25th of previous month orders are booked on slitters and
mother mill. Total capacity in direct route is divided in four weeks but on getting opportunity mill roll the material. Bulk
rolling poses a risk of immediate dispatches in one route and impacting others. Supplies through slitters happen on fixed
rate from mill to slitter and slitter to TCIL. A day loss can be recovered.
Problem Statement/Challenges Faced

1. Product or SKU get run out at one facility or too much build up happens at another facility
2. Current push-based SKU wise supply chain is resulting in line stoppage and inventory build up, push based strategy
to be converted into pull base
3. Improvising agility by reducing order lead time, customer order fulfilment in a days time is an expectation
Critical Case Questions

1. Does TSL need more supply points, since capital expenditure is a constraint TSL is resisting in opening new fronts
2. Any new strategy required? It need to focus on pull supply chain and build up agility in current system
3. Digital solution that may give visibility of overall supply chain is deemed of but basic infrastructure of digital solution
desired from participant
4. How to reduce existing working capital? New digital or supply chain strategy should focus on reducing it.

Assumptions:

Prices are not in control and assumed fixed

Capacity are fixed and are not subjected to change
Customer requirement not in our hand and is not subjected to change
Domain Supply Chain & Logistics Planning
Name of the Case: The challenge of medicine procurement

Introduction: ABC Healthcare is a multi-specialty hospital with a dozen clinics spread across a city in Eastern India. It is a 1000
bed hospital. An annual load of 20 lakh outpatients and 50000 inpatients is handled round-the-clock by professional, trained
and qualified staff. It also has four branches in nearby towns. Its medicines formulary consists of around 1000 SKUs and
consumables consists of around 2500 SKUs.

Background

The mandate given by the senior management to the hospital administration is to provide highest quality of care to its
patients. Its medicines formulary consists of around 1000 SKUs and consumables consists of around 2500 SKUs. The annual
spend of the hospital on medicines and consumables around Rs100 Crores. The hospital depends on a single aggregator “XYZ
Services” for all its requirements of medicines and consumables. At present, about 80% of the revenue of XYZ Services is from
ABC Healthcare. One time orders are placed on the aggregator as per the requirement (same items can be ordered more
than once upon repetitive requirement) and the aggregator delivers the items to the hospital in 30 days. The single aggregator
was chosen to maintain the service levels at the desired limits. The average due date performance (DDP) and average on-
time-in-full (OTIF) levels of the aggregator are at 65% and 60% respectively.
Mr. Alan is the new manager of the procurement department of the hospital who has been tasked with formulating a strategy
to bring the service levels of the aggregator to above 95% (DDP and OTIF). Mr. Alan does a quick secondary research on the
pharma industry and finds that there are two types of drugs (i) Generic Drugs (ii) Branded Drugs. Generic drugs are copies
of branded(brand-name) drugs that have the same dosage, use, effects, side effects, administration route, risks, safety, and
strength as the original drug. In other words, their pharmacological effects are same as those of their brand-
name counterparts. All medicines whether generic or branded (in case of proprietary) are procured through the same
aggregator “XYZ Services”. He also found that only 17% of the over Rs 1 lakh crore domestic pharmaceutical market is under
direct government price control. Even by volumes the government regulates 24% of the medicines sold. Rest of the medicines
have frequent price fluctuations depending on the demand-supply gap.
During a coffee break Mr.Asgar a senior specialist in the hospital informed Mr. Alan that ABC Healthcare had already moved
from branded medicines to generic medicines even before the Medical Council of India (MCI) brought an amendment in
2016 in the Indian Medical Council Regulations (Professional Conduct, Etiquette and Ethics) in clause 1.5 relating to the use
of generic names of drugs by doctors. It stated that “every physician should, as far as possible, prescribe drugs with generic
names”. Only in cases of proprietary drugs the brand-name drugs are procured.
Problem Statement/Challenges Faced

One of the challenges faced by the hospital is irregular supply of medicines and consumables.
Due to irregular supplies of medicines and consumables the hospital ends up carrying at least three months stocks in its
stores. Such inventory levels pose two major challenges (i) Risk of expiry of medicines which then must be destroyed (ii)
blocking of the hospital’s working capital. Upon further investigation, Mr. Alan finds that some of the orders placed by the
hospital contain very low quantity of some SKUs hence the aggregator is unable to source the items at the special price
initially offered by the pharmaceutical companies for bulk quantity. Such low order quantity SKUs are required once or twice
in a year only.

Critical Case Questions

1. What procurement model/contracting strategy should the hospital follow, to ensure 100% availability of medicines
and consumables always without running into the risk of medicines expiring or carrying a huge inventory?
2. What procurement model/ contracting strategy should the hospital follow for the low quantity orders which the
aggregator is not able to supply?
3. Will the liquidated damages clause in contracting be helpful in making the aggregator deliver the items on time?
4. What steps should the aggregator take to ensure that all items are supplied to the hospital on time.
5. What strategy should “XYZ Services” use to expand their business?
Domain Strategic Procurement
Name of the Case: Develop procurement strategy for met-coal
Introduction:
Tata Steel Group (India & European) requires around 14 million MT of Coking coal to make coke which is used in Blast
furnace for making hot metal and around 6 million MT of PCI coal which is directly used as fuel in the Blast furnace
(together coking coal & PCI coal are called as metallurgical coal).
In terms of market, Australia produces ~65% of global seaborne met-coal. The met-coal market is supplier dominated with
the top player controlling ~35% market share.
The coking coal is further divided based on quality of coal as Prime Hard coking coal, Hard Coking coal and Semi Soft coal –
a blend of the coking coal is used for coke making to make coke.
Current Context:
Tata Steel has very high dependency on Australia (~75% of total coking coal import happens from Australia). However,
Australia mining is prone to weather disruptions (cyclone Debbie in 2017) and have unpredictable monsoons which disrupt
the supply chain.
The uncertainty of China steel policy and uncertainty in supply chain because of natural calamity, disruptions in mining
operations etc results in a highly volatile met-coal market (in last 3 years Prime Hard coking coal price swing is between
100$/t – 300$/t, currently at 150/t).
Similarly, the contract with the dominant suppliers is un-favourable to Tata Steel as the contract terms & conditions are
one-sided.
In the market, alternate coals are available with different suppliers and in different geography.
Problem Statement/Challenges Faced:
The coal quality must match the technical requirement of coke plants and it should be available 100% (no stock-outs)
Landed cost of coking coal is one the prime consideration and working capital cycle needs to be optimum.
Critical Case Questions

1. What are the critical parameters to consider for devising procurement strategy?
2. What should be the Tata Steel procurement strategy?
3. What are the key risks to above strategy?
4. What is the best in class procurement strategy vis-à-vis current and future trends?
Domain Strategic Procurement
Name of the Case: Optimizing inventory of Raw material (coking coal)
Introduction:
Tata Steel Group (India and Europe) imports around 16 million MT of Coking coal & 6 million MT of PCI coal (together
called as Metallurgical coal). The total spend of TSL on imported met-coal is ~ 3 bn USD. Tata Steel India has its own coking
coal mine in India producing about 3 million MT per annum.
Most of the coking coal is imported from Australia, USA, Canada, Indonesia and New Zealand. Australia is the dominant
source with 65% of sea-borne market share.
The coking coal market includes both miners and traders who supply coal in the market.
The coking coal is further divided based on quality of coal as Prime Hard coking coal, Hard Coking coal and Semi Soft coal –
a blend of the above coking coal is used in coke making to make coke which is further used in Blast furnace for iron
making.
Current Context:
Imported Met-coal has a high lead time to reach from mine to our plant. The uncertainties of sea-borne trade, weather at
source and destination, inland logistics (availability of railways at source and destination country) requires Tata Steel to
maintain high inventory of coking coal.
Further, in India, we have 3 plant locations at Jamshedpur, Kalinganagar and Angul (TSBSL) with each plant maintaining its
own inventory of all the different grades of coking coal and PCI.
Thus, Tata Steel carries inventory at high seas (material in ships sailing for Indian port), at Indian port and inside plant
premises.
All the above factors result in a high inventory carrying cost for Tata Steel.
Problem Statement/Challenges Faced:
In order to protect our steel margins and lower inventory holding cost, inventory optimization is very critical for Tata Steel.
Given the bulk nature, space is also constraint and comes at a cost.
Critical Case Questions:
1. What levers can Tata Steel use to reduce its inventory?
2. What alternate structure/new business models can be looked into for optimizing inventory?
3. What are the critical success factors to above models and risks, if any?
Domain Strategic Procurement
Name of the Case: Price risk management for steel making raw materials.
Introduction:
Tata Steel requires around 20 million MT of metallurgical coal and 15 MT of iron ore for making hot metal and around 6
million MT of PCI coal which is directly used as fuel in the Blast furnace (together coking coal & PCI coal are called as
metallurgical coal).
• Steel making raw materials are currently one of the most volatile commodities.
• Metallurgical coal is a very balanced market across all grades whilst iron ore is surplus in some grades (Fines)
whilst balanced in others (Pellets and Pellet feed)
• Whilst metallurgical coal is not very liquid, iron ore is relatively matured
• Iron ore’s paper trade (derivative) volumes is equivalent to physical volumes (1.6 billion tons). Met coal paper
traded volumes is 15 millions tons as against physical volume of 300 million tonnes.
Current Context:

1. Mining is prone to weather disruptions (e.g. Cyclone Debbie in Australia, 2017,) and have unpredictable monsoons
which disrupt the supply chain. Tata Steel has very high dependency on Australia (~75% of total coking coal import
happens from Australia).
2. The uncertainty of China steel policy and uncertainty in supply chain because of natural calamity, disruptions in
mining operations etc results in a highly volatile met-coal and iron ore market (in last 3 years Prime Hard coking
coal price swing is between 100$/t – 300$/t, currently at $150/t and iron ore from $60/t to $120/t; currently at
$85/t)
3. Approx. 40-50% of costs in Tata Steels P&L are associated with purchased iron ore and coal costs
Problem Statement/Challenges Faced:

1. Protecting Steel margins is essential for defining Tata Steel’s profit.

2. Landed cost of raw materials is one the prime consideration and working capital cycle needs to be optimum.
Critical Case Questions (4 in nos.)

1. What should be the price risk management of Tata Steel?

2. What should Tata Steel do to secure EBTIDA margins whilst also avoiding any marked to market risk?
3. What are the key risks to the above strategy?
4. What capabilities does Tata Steel need to develop the competitive advantage?