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Introduction
1.1 Background
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and related information from the point of origin to the point of consummation in order
to meet customer requirements (Chopra and Meindl, 2001).
Typically, steel industry requires a very high flow of inbound material (mostly
iron ore and steel) as it is bulky and having very high volume and a relatively low
flow of outbound material flow (as the finished steel is less in quantity and volume).
Thus, a practical investigation with one of the largest manufactures of steel in India
revealed that logistics cost is around 20% of the overall material cost. Primarily, this
is attributed to increased imports and thus the overall cost of logistics has gone
significantly higher. Looking for this high cost various organizations are now striving
to understand various cost elements and the ways of handling it (Sadler, 2007).
During the last 20 years, Indian steel sector has transformed itself from the
conventional low cost steel manufacturing from iron ore to specialized and
multipurpose steels manufacturing from scrap steels. This shift of manufacturing has
led the heavy imports of scrap steel and thus a witnessing cost of inbound logistics
and outbound logistics.
Inbound and outbound logistics are the part of the supply chain which plans,
implements and controls the efficient, effective, forward and backward (reverse) flow
and storage of goods, services and information between the point of origin and the
point of consumption in order to meet customers‘ requirements with lesser transit time
and cost (Zakariah and Pyeman,2013)
The goal of inbound and outbound movements are to move the cargo of both
raw materials and finished goods effectively and efficiently, so as to extend the
desired level of customer service at the least cost. Thus, logistics management in a
steel industry starts with ascertaining timely delivery of material at plant for
production and till the availability of material at customer‘s end. Further, in order to
meet the challenge of international competition, industries are finding that they must
now structure their logistics channels and other aspects in order to deliver their
products to the ultimate customers in the best condition, in the shortest time and with
the least total cost (Suwan and Suwanmanee, 2012).
An attempt (Figure 1.1) is made to study the inbound and outbound logistics
cost in Indian steel manufacturing highlighting select ways of logistics cost control
and optimization.
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Also, a Figure 1.2 presents an attempt to understand selective control mechanism of
inbound and outbound logistic cost in Indian steel sector.
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Shipping through a
particular shipping line for
both inbound &outbound Using same port for
Using rail movement
transportation for all handling both inbound
longer routes. and outbound
movements.
Selective control
Using road movement Bulk procurement
transportation for all
mechanism for along with subsidiary
smaller routes. Inbound and outbound firms for cheaper cost
logistics cost.
Figure 1.2: Select control mechanisms for logistics cost in Indian steel sector
Steel is one of the most common materials in the world. It is mainly used for
housing, transport, food and water supply, energy production, tools and healthcare.
Nearly everything around us is either made of steel or manufactured by equipment
made of steel. Steel is inextricably linked to economic growth and prosperity.Steel is
a truly innovative material necessary for society to survive and advance. It is
adaptable enough to meet existing and future challenges and has evolved to meet the
challenges of high speed railway, high rise buildings, the revolution in automobile
design, renewable energy and deep sea marine applications(www.worldsteel.com).
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The steel industry is the second biggest industry in the world after oil and gas
with an estimated global turnover of 900 billion USD. Despite continued turbulence
around the world in 2014, it has been another record year for the steel industry. Crude
steel production totalled 1,665 million tonnes (MT), an increase of 1% compared to
2013. 2014, also saw the emergence of a new phase in steel markets. Forthe past
decade, the steel industry was dominated by events in China. The evidence is that the
steel industry is now entering a period of pause before undoubtedly picking up again
when markets other than China drive new demand(Havenga and Simpson, 2014).
Today, China represents around 48% of the global market for steel. This will
decline in years to come. The impact of urbanisation will have a key role to play in
the future. It is estimated that a little more than 1 billion people will move to towns
and cities between now and 2030. This major flow will create substantial new demand
for steel to be used in infrastructure developments such as water, energy and mass
transit systems as well as major construction and housing programmes (Lin et al.,
2013).
Table 1.1 presents the completion of the top 10 countries of world steel
production (according to ranking in 2014). The biggest steel producing country was
China, which accounted for 21.7% of world steel production in 2014.
Rank Country 2007 2008 2009 2010 2011 2012 2013 2014 Total(MT)
(2014)
1 China 494.9 500.3 573.6 626.7 683.3 724.7 779 822.69 5451.14
2 Japan 120.2 118.7 87.5 109.6 107.6 107.2 110.6 110.66 1262.16
3 United States 98.1 91.4 58.2 80.6 86.2 88.6 87 88.17 1086.17
4 India 53.5 57.8 62.8 68.3 72.2 77.3 81.2 86.53 617.29
5 South Korea 51.5 53.6 48.6 58.5 68.5 69.3 66 71.54 562.54
7 Germany 48.6 45.8 32.7 43.8 44.3 42.7 42.6 42.94 526.19
9 Brazil 33.8 33.7 26.5 32.8 35.2 34.7 34.2 33.91 332.14
10 Ukraine 42.8 37.3 29.9 33.6 35.3 32.9 32.8 27.17 410.54
(Source: World steel production report:www.worldsteel.com)
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Further, Figure 1.3, presents the year wise cumulative steel production, it can
be visualized in that steel production cumulatively has shown a significant rise from
about 2200 MnT in year 1970‘s to 3700 MnT in the year 2014.
India is the world‘s Fourth-largest producer of crude steel (up from eighth in
2003) and is expected to become the second-largest producer by 2016, (Ahmadet al.,
2015). The growth in the Indian steel sector has been driven by domestic availability
of raw materials such as iron ore and cost-effective labor. Consequently, the steel
sector has been a major contributor to India‘s manufacturing output.
The Indian steel industry is very modern with state-of-the-art steel mills. It has
always strived for continuous modernization and up-gradation of older plants and
higher energy efficiency levels.
Steel production capacity of the country expanded from about 75 Million Tons
Per Annum (MTPA) in 2009-10 to about 90.5 Million Tons (MT) in 2014-15. India
produced 7.4 MT of steel in the month of June 2015 reporting the third highest
production level globally, which was 0.8 per cent higher than the country's steel
production in the same month last year 2014 (Ahmad et al., 2015).
The steel sector in India contributes nearly two per cent of the country‘s gross
domestic product (GDP) and employs over 600,000 people. The per capita
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consumption of total finished steel in the country has risen from 51 Kg in 2009-10 to
about 59 Kg in 2014-15 (Sagar, 2015). India's steel consumption for FY 2015-16 is
estimated to increase by 7 per cent, higher than 2 per cent growth last year, due to
improving economic activity, as per Ministry of Steel & Mining 2014-15
(www.steelmin.gov.in).
The total steel production in the country was 87.67 million tons in 2013-14 as
compared to 14.23 Mt in 1991-92.The high share of the other steel products in total
finished steel production is largely due to the substantial availability of raw materials
like sponge iron as well as due to the expansion of capacities and emergence of new
units in these segments. Figure:1.4 represents the steel production in the country on
million tons (www.steelmin.gov.in).
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Demand for steel is increasing day by day. The overall steel consumption has
been increased substantially during the recent years. It is also visualized that not only
the production steel increased but also consumption followed the trend. Figure 1.5
presents the consumption of steel in the country. It is clear from the graph that
consumption trends are also very fast growing.
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0
1992-1993 1997-1998 2002-2003 2007-2008 2013-2014
It may be noted here that India is seen as a steel surplus country and thus there is
tremendous potential for exports in case the organizations have capability to produce
at competitive price.
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An average car contains 960 kg of steel and iron. 34% are in the body
structure, panels, doors and trunk closures for high-strength and energy absorption in
case of a crash. 23% are in the drive train, consisting of cast iron for the engine block
and machinable carbon steel for the wear resistant gears. 12% are in the suspension,
using rolled high-strength steel strip. The remainder is found in the wheels, tiers, fuel
tank, steering and breaking systems (www.worldsteel.com).
The steel of the ship hull is rolled mild steel. These strong and dimensionally
consistent plates are welded together. Shipping containers are also made of steel.
Steel makes up 20-25% by mass of high speed trains. The main steel
components of these trains are bogies (structure underneath the trains, including
wheels, axels, bearings and motors). Freight or goods wagons are made almost
entirely of steel.
For infrastructure
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An attempt is made to study the location of steel manufacturing units in India.
Figure -1.6 presents the location of major steel manufacturing units in the country.
The Manufacturing sector‘s contribution to the GDP has stagnated at 16%, and
India‘s share in world manufacturing is only 1.8% raising need to focus more in this
area (Sagar et al., 2014). These statistics clearly indicate that while manufacturing has
not been the engine of growth for the Indian economy, it now needs to grow at a much
faster rate. Key statistics and insights (Ministry of Steel, Steel association of India
and CII Annual report, 2015) on Indian manufacturing sector are as followings:
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projected to fall from 65.0 per cent in 2011 to 51.0 per cent by 2025, while the share
of emerging economies is projected to increase from 35.0 per cent to about 49.0 per
cent over the same period. The sectoral growth rates broadly consistent with the 9.0
per cent and 9.5 per cent alternatives are presented in Table 1.2
Table 1.2: Sector wise growth rates - previous plans and target for twelfth plan
IX Xth XIth XIIth
Plan Plan Plan Plan
Average 9% 9.5%
Agriculture, Forestry & Fishing 2.5 2.3 3.2 4 4.2
Mining & Quarrying 4 6 4.7 8 8.5
Manufacturing 3.3 9.3 7.7 9.8 11.5
Elect. Gas & Water Supply 4.8 6.8 6.4 8 .5 9.0
Construction 7.1 11.8 7.8 10 11
Trade, Hotels & Restaurant 7.5 9.6 7 11 11.2
Transport, Storage & Communication 8.9 13.8 12.5 11 11.2
Financing, Insurance, Real Estate & 8 9.9 10.7 10 10.5
Business services
Community, Social & Personal Services 7.7 5.3 9.4 8 8
Total GDP 5.5 7.8 8.2 9 9.5
Industry 4.3 9.4 7.4 9.6 10.9
Services 7.9 9.3 10 10 10
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information and allocate the related costs of logistics activities to specific cost objects,
because traditional accounting system and records cannot obtain necessary
information about components of logistics costs.
Logistics cost within and across-firms are further underscored in most out-
sourcing cases. For most companies, the costs are beyond their legal boundaries.
Activities that used to be performed in-house are now out-sourced to service
providers. For the majority of organizations, if logistics costs are beyond the business
boundaries, a bigger opportunities for cost improvement will also be found in that
wider supply chain.
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Figure 1.7: Typical environmental pressure influencing logistics system
Typically, in the Indian context where studies in this area are negligible. There
is a need of study on logistics and related cost in the content of any organization of
Indian steel industries.
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1.4 Need and motivation of the study
Logistics is one of the main functions of any organization. Typically, for steel
industries logistics acts as a key differentiator in performance as it is activity for the
major cost element. Exorbitant logistic cost (14% of the total value of goods) in India
is primarily responsible for making goods uncompetitive and may further erode the
competitiveness in the international market unless corrective measures are not taken
(www.steel.gov.in).
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Figure 1.8: Brief description of key motivations for this research
Government
regula tions
Globa l Ma rkets
Competitive
Pressures
Integra ted
process
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inbound and
Complica ted Ta x outbound
Structure logistics in
Indian Steel
Sector
Ea sily a ccessible
informa tion
Disruptions a nd
Vulnera bility
Evolution on current
Practices
La ck of
infra structure
Socio-Politica l
issues
Finally, summarizing the findings from the review of literature and in depth
field research, the motivation on study of inbound and outbound logistics can be
attributed to
Based on the literature review and insights gained from discussion with
academicians, professionals and practitioners, the major research objectives are
conceptualized as:
4. Identify the key barriers for both inbound and outbound logistics and develop
model for understanding hierarchy.
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The scope is further restricted to study of various inbound and outbound
logistics cost elements and other issues on logistics such as unavailability of logistics
support partner, material handling are not considered in the scope of the present work
The study is restricted for value chain analysis of logistics process entire steel
value chain is beyond the scope of the present research.
The study for inbound logistics cost is covered from the material loading at
shipper‘s warehouse until the material reaches at buyer‘s warehouse or plant site. All
inbound logistics cost during these process are taken care on this study.
Operational logistics cost is not considered for the present study, this is
considered very less as compared to inbound and outbound logistics cost.
Figure 1.9: Presents the chapterization scheme adopted for present research work
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Introduction
Chapter 1
Literature Review
Chapter 2
Research Methodology
Chapter 3
Figure 1.9: Chapterization scheme adopted for the present research work
Chapter 2
This chapter covers the review of literature. Literature relating to the study of
inbound and outbound logistics discussed. The literature on supply chain and
logistics, logistics cost, inbound logistics and outbound logistics and other studies in
logistics management in Indian context are discussed in detail. Literature on various
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tools and techniques used in supply chain is also discussed and highlighted in this
chapter. Finally, gaps in literature are identified and the research objectives are being
proved.
Chapter 3
This chapter covers the research methodology adopted for present research.
This chapter defines the methodology in terms of the research design, method of data
collection and the analysis of the data along with brief about the case based approach
is carried in this chapter. The chapter covers the justification of various tools and
techniques.
Chapter 4
This chapter presents the analysis of cost elements on the context of Indian
steel industry. Statistical tools like regression analysis and chi-square test are used to
arrive at the research finding.
Chapter 5
Chapter 6
In this chapter, both inbound and outbound logistics process for company A
and B are discussed. Case methodology is used to understand the logistics
performance for both company A and B. Value Stream Mapping is done based upon
the current practices with a vision to improve the logistics performances.
Chapter 7
This chapter discusses the major findings from the case study analysis of A
and B Steel Companies in India by mapping value chain and identifying VA and
NVA activities, further, warehousing model and its application in the evaluation and
comparisons in reduction of logistics cost.
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Chapter 8
In this chapter, thesis summary and key findings are presented thoroughly
.Industrial, research implications are highlighted, and salient contributions are
presented. Finally limitations of the study and future directions are provided.
1.8 Summary
This chapter presented the need of the research along with detail background
of inbound and outbound logistics, its relevance in manufacturing of steel products,
need for the study in steel sector, key objectives, scope of this study and workflow of
entire thesis. The study undertaken is an attempt towards the identification of
important key challenges in inbound and outbound logistics in the context of Indian
steel sector.
The subsequent chapter presents the literature review and lays the theoretical
background for the study.
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