Problem Statement

ABC Steel is one of India’s biggest steel manufacturer with capacity of 20 MTPA. Further, in
India, we have 3 plant locations at X, Y and Z with each plant maintaining its own inventory of
all the different grades of raw materials.

When you study about the Deoxidization of Steel or Killing of Steel, Oxidizer elements are
used which are used on non-Standard basis to most companies as there is always a
approximation norms of 1.8 to 2.2 Kg Aluminium at 99.98% Purity Per ton of Molten Steel.
If you use more amount of Aluminium - Dissolved oxygen Quantity is Fixed in Molten Steel in
Laddle hence extra addition is wastage as slag.
For 20 Million Ton Steel even if a 10% reduction in Aluminium consumption will result in
Saving in Million USD.

ABC Steel use - Standard Aluminium Ingot from BALCO/Vedanta - 99.98% Purity 22 Kg Ingot
Approximately 2.2kg Aluminium/ton of hot metal produced is required

Procurement of Aluminium Ingot has a high lead time to reach from supplier to our plant. The
uncertainties of production and inland logistics (availability of railways at source and
destination) requires ABC Steel to maintain high inventory of ingots.

Transportation time from supplier to plant: Within 7days of order [ Within India ]

Transportation through ships from other countries: Within 90days of order

Thus, ABC 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 ABC Steel.

In order to protect our steel margins and lower inventory holding cost, inventory optimization
is very critical for ABC Steel. Given the bulk nature, space is also constraint and comes at a
cost.

Critical Case Questions:

1. What levers can ABC Steel use to reduce its inventory?

2. What alternate business models can be looked into for optimizing inventory?
3. What are the critical success factors to above models and risks, if any?