AN FINAL REPORT ON

SALES AND DISTRIBUTION CHANNELS AT STEEL AUTHORITY OF INDIA LIMITED

SUBMITTED BY: R.N.MUKHERJEE (07BS3134) STEEL AUTHORITY OF INDIA LIMITED

AN FINAL REPORT ON

SALES AND DISTRIBUTION CHANNELS AT STEEL AUTHORITY OF INDIA LIMITED

SUBMITTED BY: R.N.MUKHERJEE (07BS3134) A Report Submitted In Partial Fulfilment Of The Requirements Of MBA Program Of ICFAI BUSINESS SCHOOL, HYDERABAD

DISTRIBUTION LIST: PROF. SUBHASIS RAY (FACULTY MEMBER-MARKETING, IBS Hyderabad) MR. TANMOY SEN (SR. MANAGER (Mrkt-MS), SAIL, KOLKATA)

ACKNOWLEDGEMENTS

I express my gratitude to Mr. M.R.Rath, Sr. Manager (HRD), Steel Authority Of India Limited (Kolkata) for giving me an opportunity to work with SAIL and for extending support in the form of knowledge and guidance. I would also like to thank my company guide, Mr. Tanmoy Sen, Sr. Manager (Mrkt-MS Division), Steel Authority Of India Limited (Kolkata) as well as other employees of Steel Authority Of India Limited, Kolkata, namely, Mr.R.M.Suresh, Mr. Pankaj Singh, Mr.D.K.Sinha, Mr. N.M.Padhy, Mr. H.Hembram and Mr. M.R.Rath for being a constant source of encouragement as well as for providing guidance throughout the project. I also sincerely acknowledge the guidance and esteemed advice extended by Prof. Subhasis Ray, Faculty Member - Marketing Area, IBS (Hyderabad). Finally, I would like to thank all those people who in the course of my project have knowingly or unknowingly helped me, especially the channel members I interacted with during the course of my interactions while doing the fieldwork.

TABLE OF CONTENTS

1. 2.

ABSTRACT.6 INTRODUCTION:. 8
COMPANY OVERVIEW 8 INDUSTRY

OVERVIEW.. 10

3.

PROJECT SYNOPSIS:
.15

OBJECTIVE
15

LIMITATIONS OF THE STUDY.... 15 METHODOLOGY.

15

DETAILS OF THE WORK DONE..

16

4.

DISTRIBUTION CHANNEL STRATEGIES

18 SAIL. 18 TISCO.. 26

5.

WHAT IS A MARKETING CHANNEL

30

DEMAND SIDE FACTORS.

.30

SUPPLY SIDE
FACTORS.31

6.

WHAT IS THE WORK OF THE MARKETING

CHANNEL...31

7.

WHO BELONGS TO A MARKTING

CHANNEL...34

CHANNEL MEMBERS INVOLVED BY THE STEEL MAJORS

35 8. 9.

CHANNEL DESIGN38 SUPPLY SIDE CHANNEL ANALYSIS MARKETING

FLOW...41

10. GAP ANALYSIS42 11. CHANNEL IMPLEMENTATION STRATEGIES OF SAIL....44 12. CHANNEL POWER...47 13. SWOT ANALYSIS.49 14.

PROJECT
FINDINGS...51

15.

RECOMMENDATIONS...5
5

16.

REFERENCES..
58

ABSTRACT
All set for high growth -The steel industry is expanding worldwide for a number of years it has been benefiting from the exceptionally buoyant Asian economies (mainly India and China). The economic modernization processes in these countries are driving the sharp rise in demand for steel. In India the rise is likely to be higher than average. It is forecasted that Indian crude steel production will rise from 38 million tonnes in 2005 to 68 million tonnes (+6% p.a.) in 2015. Global crude steel output should increase somewhat less vigorously during the forecast period (by around 5% p.a.) to 1,800 million tonnes. Despite the stellar increase in production Indias share of global crude steel output is said to rise to just under 4% in the next ten years. This is still comparatively tiny compared to Chinas share of 41%. The biggest boost to efficiency in the steel industry has come from the increased use of continuous casting an indicator of the modernity of the production process. The Indian steel ministry also plans to raise the export share from 15% at present to 24% in the next 15 years. Big companies like SAIL and Tata Steel want to become global players by acquiring stakes in foreign firms.

Currently Steel Authority Of India Limited is the largest public-sector steel manufacturer in India. SAIL with a production of 12.6 MT of saleable steel in 2006-07 and a sales turnover of Rs. 39,189 crore is the market regulator. Indias consumption of steel is about 35 Kg (as per IISI report, 2005) far below global standards, but according to National Steel Policy, 05 the consumption would treble which would mean to implement an efficient and economic distribution channel for the company so that there is no demand and supply mismatch. A marketing channel is a set of interdependent organizations involved in the process of making product or service available for use or consumption. So, it is my endeavor to study whether the distribution strategy at SAIL has been profitable, whether it requires introduction of new channel or refine the existing channel and finally if the customer and channels are well researched and understood. In this project, I have studied the distribution channel strategies adopted by SAIL. I have found out the dealership policies followed and done a detailed analysis of the dealers in Eastern Region under CMO, Kolkata. I also looked into the Dankuni warehouse and studied the operation taking place for receiving and dispatching of the goods. As a part of the study I looked into the customer profile of SAIL and found out SAIL is much more efficient in serving high-end customers rather than retail ones. While working for SAIL, it has come to my notice that though SAIL has been in the market for quite some time, the brand awareness is very low among people. Moreover through the fieldwork analysis, I have found that there is still a lot of untapped potential for SAIL in retail market and this can be done by adopting effective market penetration strategies. In this interim report, crucial findings made while undertaking fieldwork have been presented and the recommendations/suggestions for the same shall be presented in the final report.

INTRODUCTION

The Company Overview: Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India. The company has the distinction of being Indias largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.

CMO- The ISO: 9001:2000 certified Central Marketing organization (CMO) is India's largest industrial marketing set-up that markets carbon steel produced by the five integrated steel plants of SAIL. Headquartered in Kolkata, it transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25 Warehouses equipped with mechanized handling systems, 16 Customer Contact Offices and 31 Consignment Agents.

Major Units Integrated Steel Plants 1. Bhilai Steel Plant (BSP) in Chhattisgarh 2. Durgapur Steel Plant (DSP) in West Bengal 3. Rourkela Steel Plant (RSP) in Orissa 4. Bokaro Steel Plant (BSL) in Jharkhand 5. IISCO Steel Plant (ISP) in West Bengal Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Ownership and Management The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its Navratna status, enjoys significant operational and financial autonomy.

The Industry Overview:

INDUSTRY STRUCTURE

INDIAN STEEL INDUSTRY

PUBLIC SECTOR INTEGRATED SECONDARY SPONGE IRON ORE PRODUCER PIG IRON PRODUCERS IRON

PRIVATE 10 SECTOR FLAT LONG INTEGRATED SECONDARY PRODUCER PRODUCERS PRODUCT PRODUCT

ALLOY PRODUCT

On the basis of the routes of production, the Indian steel industry can be divided into two types of producers Integrated Producers are those that convert iron ore into steel. There are three major Integrated Steel Producers in India namely SAIL, TISCO and RINL. Secondary Producers are the mini steel plants which make steel by melting scrap or sponge iron or mixture of the two. Essar Steel, Jindal Steel and Lloyds Steel are the largest producers of steel through the secondary route.

Major Players Steel Authority of India Limited(SAIL) Tata Iron and Steel Company Limited(TISCO)
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 Rastriya Ispat Nigam Limited(RINL) Jindal Steel Works Essar Steel PRODUCTS
Iron Ore

MAJOR PLAYERS
NMDC, SesaGoa, SAIL, TISCO. RINL, Sesa Industry, Usha Ispat, Kirloskar Ferrous, SAIl. Essar Steel, Ispat, Vikram Ispat. SAIL, TISCO, Essar, Jindal. SAIL, TISCO, Jindal, Bhusan steel. SAIL, TISCO, Jindal and Uttam steel.

FEATURES
India ranks 6th in production of iron ore in the world. Accounts for about 6% of total global production. Total capacity of 7.1 mt per annum. Growth dependent on automobile, engineering and railway industry. Second largest producer in the world. Annual capacity is 6.7 mt. HRC used in automobiles, engineering and consumer durables. Manufacturing of coated sheets, automobiles and white goods. Used in fabrication work in car bodies. Mills are captive intensive. Installed capacity of 1.6 mtpa. Inludes bars, structurals, wire rods, angles. Used in construction and heavy engineering. Installed capacity of 22 mtpa. Value added steel for specific application. Sector has installed capacity of 4 mtpa.

Pig Iron

Sponge Iron HR Coils/Sheets CR Coils/Sheets Galvanized Sheets

Long Products

SAIL, RINL, TISCO.

Alloy Steel

Mukund steel, SAIL, Kalyani Steels, Usha Martin, Sunflag Iron.

ALL INDIA PRODUCTION OF IRON & STEEL

PRODUCT 2007-08 2006-07 GROWTH (%)
12

(mT)
Crude Steel Finished Steel Alloy & Stainless Steel Pig Iron Sponge iron 49.0417 49.276 0.350 4.839 12.7157

(mT)
46.1130 46.4373 0.300 4.5464 10.1388 6.3 6.1 16.6 6.4 25.4

WORLD CRUDE STEEL PRODUCTION (Feb, 2008)

COUNTRY CHINA JAPAN INDIA GERMANY TURKEY RUSSIA UKRAINE NORTH AMERICA BRAZIL WORLD CRUDE STEEL PRODUCTION(mT) 38.9 9.8 4.6 3.8 2.2 6.0 3.5 10.9 2.7 109 CHANGE IN % YOY 7.0 6.5 7.6 -1.3 14.7 5.3 5.3 5.2 8.1 5.3

INDIAN STEEL INDUSTRY- MARKET SHARE

13

CATEGORY-WISE PRODUCTION (APR07 TO FEB08)

Inflation becoming a major concern: During the current fiscal year the rate of inflation in India soared to an 11 month high at 5.92% during the week ended on 8th March, 08. It appears to be a confirmation of an industrial slowdown. The growth rate of the six core infrastructure industries namely coal, electricity, cement, steel, crude petroleum and petroleum refinery products suffered a steep decline of 5.5% during April-January 2007-08 as compared to a healthier growth achieved during the same period of the previous year. This core group accounts for about 26.7% in the overall GDP appears to have been hit by low demand, low production and higher prices. Finished steel recorded a lower growth rate of 5.5% compared to 8.5% of previous year.

14

Higher Production cost leads to Steel price Increase: The incredible escalation in rawmaterial prices has increased steel production cost by over $250 per tones. Iron ore prices have increased and metallurgical coke prices have increased even more. In domestic market the NMDC has increased iron ore prices by 47.5% by October last year. Taking lead the countrys largest private sector steel maker TISCO has increased steel prices between Rs.5000 per tonne for Flat products and Rs.1500-2000 for Long Products. Whereas SAIL came up with an increase of Rs.1500-2500 per tonnes of steel. Recent market trends shows a much more stable condition after major companies decided not to escalate prices further.

PROJECT SYNOPSIS
OBJECTIVE To study the existing distribution channel strategies at SAIL. To view the strategic alliance between SAIL and its dealers. To identify potential and untapped areas within the distribution channel. To gather data on channel partners and customers of its major competitor (TISCO).

LIMITATIONS OF THE STUDY The study shall be restricted to Kolkata city only. Mostly the dealers are spread across various districts so it is physically and financially not viable for me being a student to meet them personally. Gathering information about the competitors strategies is not easy as the respective companies are not forthcoming with information.

15

PROPOSED METHODOLOGY Fieldwork and Observation: The best way to study the existing distribution channel strategies as well as alternative channel strategies is through fieldwork. Comparative analysis: To find out the different distribution strategies adopted by the competitors namely TISCO being one of the major competitor of SAIL and also find out the promotional strategies adopted by the same. This comparative analysis shall be discussed in detail in the final project, where I propose to compare the strategies adopted by SAIL with those of its competitors and recommend scope for improvement.

DETAILS OF THE WORK DONE

The majority of the project work has been carried out via fieldwork, wherein I actually tried to have an insight of the channel partners involved by SAIL. On the first day of my reporting to the SAIL, CMO, I was briefed about the company and operations involved in CMO, Kolkata, then I was offered with topics such as Distribution channels, inventory management and logistics. I chose to select distribution channel because it was in line with my field of interest and also from the suggestion of my IBS faculty. Then the following week my company guide assigned me with the work of submitting a report about SAIL, the current economic scenario, current trend in steel industry and how does distribution channel network fit into this core industry. During the course of submission of Initial Information Report (IIR) I got a better idea about how to go about with the analysis and with the help of my faculty guide I decided to do a comparative analysis of distribution strategy of SAIL and TISCO. As a result I visited the authorized dealers of SAIL in and around West Bengal given by SAIL. After the dealers I wanted to visit the customers of SAIL, so I visited companies such as CLW, Calcutta Port Trust, BPCL, Hind Motors, Indian Railways etc but due to unavailability of

16

Official letter from the respective organization few of the above organization did not render me any information but others really co-operated with me and gave few relevant information regarding their transaction with SAIL. Later during the 1st week of April I was allowed to pay a visit to Dankuni Warehouse the largest warehouse of its kind in Asia under the guidance of Mr.R.M.Suresh AGMWarehouse where I got the overview of how products are received and dispatched from the warehouse and also the turnaround time for different products. Apart from SAIL I also payed a visit to Tata Iron and Steel Company and got valuable information about their distribution strategies. The finding done till now on TISCO is totally based on the Flat Products category as the Long product marketing team was In Jamshedpur during my period of visit. Thus such fieldwork activity has not only enabled me to learn the nuance of distribution strategies but also an opportunity to build contacts in various corporate offices. In this interim report, I have already analyzed the dealership strategies with respect to SAIL and done a SWOT Analysis as well. I have also presented my fieldwork observations and the recommendations/suggestions for the same shall be presented in the final report. I propose to complete my comparative analysis of Steel Authority of India Limited and TISCO by 10st May, 2008 and present my findings in the final report.

17

DISTRIBUTION CHANNEL STRATEGIES

Steel Authority of India Limited: I aimed to study the distribution channel
partners adopted by the company, including the dealer network, consignment agent and customer role in the channel. Then having an insight of performance of several marketing flows. I believe this is required, because for a sound company to be able to withstand competitors channel structure and functions can never be stagnant but is an ongoing process. The Sales & Distribution channels at SAIL essentially involve two forms of outlets Primary and Secondary. The primary outlets include the five Integrated Steel Plants and three Special Steel Plant located all around India. It also comprises 24 warehouses and 31 consignment agents who are externally contracted by SAIL for distribution directly to the customers. The Secondary outlets include conversion agents (25), authorized district dealers network and decoiling/cutting agents who serve directly to the customers. Primary outlet is generally adopted for high-end customers (<500tonnes) where the product is being directly dispatched to the consumer by SAIL directly.

18

The authorized dealers are generally used for serving to the retail customers whose demand for products are not of huge quantity. The dealers in SAIL are selected through the following parameters:-

DEALERS POLICY
1. LOCATION: The scheme envisages developing a dealership network covering all the districts of the country including the district locations where SAIL has a Departmental or a Consignment Agency Warehouse. The Regions are to propose for appointment of Dealers in additional districts as and when they are notified by any of the States/UT s under their jurisdiction and Head of LP/FP will approve such districts for the purpose of appointment of Dealer. 2. PRESS ADVERTISEMENTS: After finalizing the location, number of dealers are appointed along with their jurisdiction and intended off take , a press advertisement shall be issued in leading national and local newspapers, broadly announcing the Scheme and giving specific details of the locations where it is intended to appoint dealer(s) The draft b)The press advertisement shall prescribe the last date up to which application forms shall be available and the last date for submission of completed application forms copy of the advertisement shall also be displayed on the notice board of the Branch/Regional offices concerned and on SAIL website. In the press Advertisement, 21 days will be given for obtaining the Application forms and 30 days thereafter for submission of Forms. C) The advertisement shall also prescribe that preference for appointment would be accorded to applicants belonging to the scheduled caste/scheduled tribe and OBCs categories. 3. PRODUCTS TO BE COVERED UNDER THIS SCHEME: Supplies shall normally be made as pre the item-wise agreed quantity with the SAIL Dealer. Converted Products (Embossed with SAIL brand name) may also be supplied to 19

SAIL Dealers, whereas TMT in 8mm to12mm sizes shall normally be supplied in straight length, wherever Dealers are willing, these sizes of TMT can be supplied in coil from also. 4. EVALUATION OF APPLICATIONS: 4.1 Evaluation Committee: A committee comprising shall evaluate applications: Finance Executive of the Branch under whose jurisdiction the Dealer is proposed to be appointed and any two members out of the following: Regional DD&C (1/c.), BM (FP)/BM (LP) of the concerned branch, a Representative of Regional avail Sr.Regional Manager is authorized for the formation of the evaluation committee.

4.2 Short listing: The Evaluation committee would Shortlist the applications carefully evaluating the same taking the following factors under consideration: a) Nature of current business of the applicant, if any, and its linkage with steel, cement, other construction products etc. b) Reputation of the applicant in the market-The Evaluation committee shall informally ascertain through trade channel/market sources the business reputation of the applicant in the market. c) Financial standing of the applicant-The sources of funds deployed in businessown/borrowed, cash credit limits available. d) While it need not be insisted upon that the Dealer shall exclusively deal with SAIL products, weightage may be given to such applicants who intend to deal exclusively with SAIL products. e) Infrastructure service facilities available with the applicant: As a minimum qualifying criterion, the applicant should possess an office/retail outlet besides a storage space of suitable capacity.

20

4.3 Inspection: a) The Evaluation Committee shall visit the short listed applicant for on-the-spot verification of the infrastructure facilities reported by the applicant. b) To facilitate expeditious inspection, any two members of the Evaluation Committee may undertake the inspection work. Additionally Sr. RM can also constitute a separate 2 member Committee for expediting inspection of applicants premises. During the evaluation, the committee may also hold discussions with the applicants to seek clarifications, if any, and to obtain a clearer understanding of their operations. The inspection report will be made available to the Evaluation Committee. 5. RECOMMENDATION: After the inspection, the Evaluation Committee would submit its final recommendations on the location-wise name of the proposed Dealers, the products to the Senior Regional Manager through other Regional Manager. 6. APPROVING AUTHORITY: A Committee constituted with the approval of Director (Commercial) shall finalize the appointment of Dealers. For this purpose, details of applications including the recommendation of the Evaluation Committee as per clause. The region will forward to the concerned committee constituted for the purpose. Upon finalizing as above, the concerned Branch Manager shall issue the Letter Of Intent for appointment as dealer. The Regional DD&C shall be the coordinating agency for the process of appointment of dealers in the region. 7. ALLOTMENT OF PRODUCT TO THE DEALERS: a) No restriction is being placed on the dealers about the number of products that he may like to deal in, within the lists of products covered by the scheme. b) Depending upon the extent of responses and based on the recommendation of the evaluation committee, the approving authority may decide about appointing a dealer to deal with one or more products.

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8. NUMBERS OF DEALERS IN A DISTRICT: Till date there are around 1562 dealer network covering all over India. The number of dealers are appointed in such a manner that they should have extensive coverage without being overcrowded 9. SUBMISSION AND FORFEITURE OF SECURITY DEPOSIT: a. In exceptional cases, the time limit of 15 days for submission of security deposit can be extended by additional 15 days at a time for three times up to a maximum of 45 days with the approval of RMs. b. 15 days notice would be required for final withdrawal of LOI. These 15 days would be a part of the total extension period of 45 days as described in Para(a) above. c. Withdrawal of LOI may be done in consultation with CMO (law) d. In the eventuality of termination of the dealership, forfeiture of the security deposit made by the SAIL Dealers can be waived based on merits by RMs on a case to case basis. 10. SALES PROMOTION: Regional Managers within their budgetary limits undertake standardized sales promotion activities like enhancements of product awareness through billboards, local dailies, media insertions etc. 11. CO-ORDINATION WITH DEALERS: The executives at the branch will co-ordinate with the assigned Dealers on all matters as detailed under roles and responsibilities prescribed in Circular brought out by the Personnel Department. 12. FOLLOW-UP: a) BM (FP)/BM (LP) of their designated representative would inspect availability of materials at the premises of the Dealer from time to time. b) The office of Head of (RM&DC) will monitor the process of appointment of Dealers as well as sales through the Dealers at various locations.

22

As with interviewing with the dealers I could find out certain facts about their response to SAILs service as a manufacturer which are as following:a) The authorized dealers are not exclusive dealers as they can also trade with others company products. b) Mostly a specific geographic circle is assigned to the dealers so no other SAIL dealer is present in that region. c) There is no restriction on the amount of maximum quantity that a dealer can procure but he has to order a minimum of 8 tonnes of product from SAIL. d) All the dealer transaction are made by advance payment for the products and no credit period are allowed whatsoever. e) The pricing strategy adopted by SAIL is mostly very competitive with TISCO. f) There is very little interaction with dealers and no special incentive is given to the dealers for achievement of a sales target. g) The products are supplied from warehouse to the dealers and the cost is borne by the company.

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STRUCTURAL ORGANIZATION OF SALES OFFICE (SAIL)

HEADQUARTERS REGIONAL SALES

REGIONAL OFFICE

BRANCH SALES OFFICE

WAREHOUSE MANAGER

SENIOR FLAT MANAGER FINANCE

BM FLAT PRODUCT

BM LONG PRODUCT

CR/GP

HRC

HSMP

PMP

STRL

TMT

PROJ.

PIG IRON

24

SALES (SAIL)
REGION-WISE DIRECT SALES(000T) 1st April,2008 APP TARGET ER NR WR SR RLY TOTAL 74.7 170.5 36.6 75.2 72.1 429.1 BSP 1.3 0.1 1.3 8.2 19 29.9 105.2 DSP 2.8 3.9 0 1.6 0.3 8.6 40.8 RSP 1.7 0.5 0.2 2.6 0.2 5.2 86.5 BSL 15.3 26.4 6.1 3.2 1.8 52.8 191 ISP 0.8 0.3 0.1 0 0.6 1.8 5.6 TOTAL 21.9 31.2 7.7 15.6 21.9 98.3 429.1

TARGET(APP)

NOTES: The performance of Northern Region is quite gloomy just achieving 18.29% of the desired sales. Similarly Rourkela Steel Plant also lagging way behind its target by attaining 6.01% of projected sales figure. FACTS ABOUT SALES FORCE: Employee Sales Force Mostly Used For Special Purpose Steel Products (FP, LP& PET). Cash Incentives For Meeting Sales Target Sales Operations Are Mainly Handled By Branch Sales Offices.

25

Sales Pattern: The sales pattern till date of Steel Authority Of India Limited are as
following:I. Direct Sales (51%) - The products are dispatched directly to the customer destination by the company from the production plants. II. Warehouse Sales (49%) SAIL has total 24 warehouses across India where the products are transported from the production plants and stored before being given to the consignment agents, dealers and customers.

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DANKUNI WAREHOUSE: Asias largest warehouse of its kind consisting of 6 material stocking BAYS and one Mechanized BAY for unloading the materials from the wagons. The operations of the warehouse are as followings:a. The materials are transported from manufacturing plants to the warehouse by Railways (42%) and road (3%). b. The railway wagons are of standard capacity of 60 tonnes and total of 40 wagons. c. All the loading and unloading of wagons and trucks are done by the Handling Contractor who is an outside agent contracted by SAIL. d. The materials are put in respective bays like Beams are put in A-BAY, TMT bars in C-BAY etc. The Delivery Process: The customer who wants a particular product needs to carry the Delivery Order issued by the Customer Marketing Office. Then a loading slip is generated by the system w.r.t. the DO. The vehicle of the customer is weighed empty and again the vehicle is weighed along with the product. The net weight of the material is calculated. Generally Truck Turn-around Time: 1 Punch-2.30hr 2 Punch-4.00hr Multi Punch-5.30hr 1Punch= same type of product is loaded in the truck.

Tata Iron &Steel Company (TISCO): Tata Steel is India's largest integrated private sector steel company. Established in 1907, its steel plant at Jamshedpur produces four million tonnes of hot and cold rolled flat and long products.

27

The company is backward integrated with owned iron ore mines and collieries. With its competitive advantage in raw materials, efficient operations and the benefits of a recently-completed $2.3 billion programme of modernization, Tata Steel is among the lowest cost steel producers in the world.

PLANT

SALES & DISTRIBUTION

DISTRIBUTOR

DEALER/RETAILER

CUSTOMER

Product: All the products are branded and extreme effort are put into it to build brand awareness among the customers. TATA SHAKTEE (GC SHEETS) 1. Flat Product(FP) STEELIUM (CR SHEETS) 2. Long Products(LP)- TATA TISCON(TMT BARS) 3. TUBES- TATA PIPES. Distribution Methodology: An annual production plan is made for all the products for the plant to manufacture. After that there are Sales & Distribution unit allotted to each plant and region across India. The S&D unit decides on the weekly, monthly sales targets of each product in lieu with the annual plan. The S&D unit then decides on the distributor and dealers network and also the promotion of the products.

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Distributor: There are about 50 recognized distributors in India for the distribution of goods from the company warehouse to the customers. A specialized team of people in S&D unit decides on the rules and regulations for the selection of distributor and gives advertisement regarding the same in all the dailies and puts a notice in all of its organization for 3 weeks. Then depending upon meeting the above criteria distributors are selected. All the distributors are exclusive distributors covering a particular territory. The contracts of TISCO with the distributors are valid for only 1 year after which again fresh evaluation takes place. The distributors can select their dealers/ retailers but the maximum number is restricted by TISCO. Credit Policy: There is no credit allowed to the distributor after the product is delivered; only the transit time credit is given at a maximum of 21 Days. Transportation Cost: The cost of delivering the products from the plant to the distributor warehouse is borne by the distributor. Road is the main source of transportation. Quantity of Product: There is no specific minimum amount of product is fixed for the distributor the bulk-breaking is being done by the manufacturer itself (TISCO). E-Weighing Each distributor is supplied with an electronic weighing machine at their warehouse for standard weighing to take place. Pricing: Recommended Consumer Price (RCP) - This is mostly a fixed price for a particular product all around India including transit charge from the warehouse. But this is followed rarely, differential pricing is adopted but the selling price to be used by the distributor is fixed by TISCO. Promotion: Extensive promotional schemes are being followed to create brand awareness among the customers spending heavily on advertisement and also giving gifts

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and awards to the distributors and also there are minimum four distributor/Dealer meet during the year to educate the channel partners about new products and also attend to their problem. Customers: Mainly these are Original Equipment Manufacturers like auto major Hyundai, Maruti Udyog, Fiat etc, two-wheelers like Hero Honda, TVS. The consumption of TISCO product is regular throughout the year. So TISCO makes is sure that the products are customized and delivered within minimum turn over time possible. But credit policy is same as for every customer. (*All the information I have presented is based on the Flat Product category Of TISCO)

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WHAT IS A MARKETING CHANNEL?

A marketing channel is a set of independent organizations involved in the process of making a product or service available for use or consumption.

WHAT IS THE NEED OF MARKETING CHANNELS?

The needs of marketing channel are as following: Demand-Side Factors Supply-Side Factors Demand-Side Factors I. Facilitation of Search- The process of search is characterized by uncertainty on the part of both end-users and sellers. End- users are uncertain about where to find the products or services they want, whereas sellers are uncertain about how to reach the target end-users. In case of steel industry majority of transactions are B-2-B and lesser of B-2-C interaction. So as to facilitate unperturbed services to its customers SAIL has 5 ISPs, 3 SSPs, 24 Departmental Warehouses and 31 Consignment Agents surrounding all over India, making it easier for SAIL to reach its target customers and vice-versa. II. Adjustment of Assortment Discrepancy- Independent intermediaries in a marketing channel performs the valuable function of sorting goods. This is valuable because of the natural discrepancy between the assortment of goods and services made by a given manufacturer and the assortment demanded by the endusers. The sorting functions performed by the intermediaries of SAIL are as following:i. ii. iii. iv. Sorting out: Plant warehouses. Accumulation: Departmental warehouses, Consignment Agents, Traders. Allocation: Dealers, Traders. Assorting: Dealer (minimal). 31

Supply-Side Factors I. Routinization of Transactions: Each purchase transaction involves ordering, valuating, and payment for goods and services. The buyer and seller must agree on the amount, mode, and timing of the payment. These costs of distribution can be minimized if the transactions are routinized. The routinized transactions of SAIL are as following: Issuance of Delivery Order, booking of Purchase orders, issuance of work order for the transporters, receipt of payment, fixing the amount of transaction through MOU etc. II. Reduction in Number of Contacts: Without channel intermediaries, every producer would have to interact with every potential buyer in order to create all possible market exchanges. Intermediaries reduce the complexity of this exchange system and thus facilitate transaction. SAIL has 1562 dealers handled through 58 Sales offices enabling it to cover all over India customer base.

WHAT IS THE WORK OF THE MARKETING CHANNEL?

The work of the channel includes the performance of several marketing flows and the channel members involved by SAIL which are as following:MARKETING FLOW Physical Possession Ownership Promotion Negotiation COST REPRESENTED Storage and Delivery costs Inventory carrying costs Advertisement, sales Promotion. Time and legal costs. CHANNEL MEMBERS INVOLVED* HIGH(M,CA,D) HIGH(CA,D,C) LOW(M) LOW(M), HIGH(D)

32

Financing Risking Ordering Payment

Credit terms, conditions of sale. Price guarantees, Insurance. Order processing costs Collections, bad-debts.

LOW(M,D) MEDIUM(M,CA) LOW(M), MEDIUM(D) LOW(M,D)

*M- Manufacturer (SAIL in this case) CA- Consignment Agent D- Dealers C- Customer 1. Physical Possession Cost: High for all the 3 channel members as mentioned above because steel products manufacturing time is quite high and particular product can be produced only at particular plant not all. The delivery cost also adds to it as transporters are external agent. 2. Ownership Cost: It is high for Consignment Agent, Dealers and Customers as they have to maintain a high inventory level to avoid stock-out. 3. Promotion Cost: This cost is generally low as compared to other costs because SAIL has an in-house promotion department. 4. Negotiation Cost: In steel transaction negotiation is generally done while signing the MoU, so in future no extra cost is attained by the manufacturer. But for dealers this cost is high compared to the manufacturer because steel prices are most dynamic in nature. 5. Financing Cost: Stringent credit policies followed by SAIL so this cost is minimal. 6. Risking Cost: To keep the products from pilferage, damage and mishandling insurance premium have to be paid regularly by the manufacturer and Consignment Agents.

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7. Ordering Cost: SAIL has a standardized order processing IT system making it quite economical whereas the dealers cant afford to implement such an IT system so the cost is higher. 8. Payment Cost: As mentioned above due strict credit policy the collection and bad-debt are minimal for SAIL and its dealers. EFFICIENCY TEMPLATE FOR CHANNEL SERVING END-USERS THROUGH DEALERS (SAIL)
Benefit Potential of Flow Proportional Flow Performance of Channel Members* Manufacture Dealer End-User r 3 3 1 1 1 1 2 1 3 2 1 2 2 1 2 1 2 1 0 0 2 1 1 1

Physical Possession Ownership Promotion Negotiation Financing Risking Ordering Payment

High High Low Low Low Low Low-Medium Low

*3-HIGH, 2-MEDIUM, 1-LOW, 0-NA. Comments: Physical Possession and Ownership: High for SAIL and its dealers to avoid stock-out. Promotion: Is generally low throughout the channel structure. Negotiation, Financing and Risking: Low for manufacturer because steel is generally traded in cash. Risking is minimal due to most of the activities are insured.

WHO BELONGS TO A MARKTING CHANNEL

The key members of a marketing channel are manufacturer, intermediaries (distributors, dealers, retail and specialized agents), and end-users (business and house-hold customers). The presence or absence of a particular type of channel member is dictated by its ability to perform the necessary channel flow to add value to end-users.

34

The Channel members engaged by steel company are as following: Manufacturer: The producer or the originator of the product or service being sold. Intermediaries: The term refers to any channel member other than manufacturer and the end-user. The different types of intermediaries used are as following: Distributors are those members who purchase the product directly from the manufacturer to accumulate at their warehouse. The volume of purchase is high. Dealers are the members who generally obtain the product from distributor or manufacturer. The volume of purchase is lower than the distributor.

End-Users: Finally, it is important to note that end-users are themselves channel members as well because they can and frequently do perform channel flows just as other channel members do. High-End Customers: These customers generally buys product of higher volume (<5000 tonnes p.a.) for further processing of steel. Retail Customers: They usually purchase products in lesser volume for house-hold requirement.

CHANNEL MEMBERS INVOLVED BY THE STEEL MAJORS:

CHANNEL MEMBERS MANUFACTURER SAIL

COMPANY WISE TISCO

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CONSIGNMENT AGENT DISTRIBUTOR DEALERSHIP TRANSPORTER TRADER MAJOR CUSTOMER RETAIL CUSTOMER PROMOTION AGENCY

MEDIUM(31) NIL INTENSIVE EXTERNALLY CONTRACTED MEDIUM HIGH-END LOW INTERNAL

LOW(7) OPTIMUM (55 approx.) EXCLUSIVE COMPANY OWNED HIGH OEM HIGH EXTERNAL

COMMENTS: 1. Consignment Agent: SAIL engages 31 CA at present to cover its operation all over India whereas TISCO has just 7 CA. 2. Distributor: TISCO has about 55 distributors covering entire country whereas SAIL does not employ distributors at all. 3. Dealership: SAIL follows an intensive dealership strategy by which dealers can trade with other companys product and the density is also high (1562) whereas TISCO follows just the opposite strategy of exclusive distributors and dealers. 4. Retail Customers: SAIL emphasizes on high-end customers so retail sector is not fully tapped as that of TISCO but SAIL has started taking preventive measures to satisfy this sector also. 5. Promotional Agency: SAIL uses its in-house promotional Strategies and no external agency is being hired like that of TISCO.

ALTERNATE CHANNEL FORMATS USED BY SAIL & TISCO

ALTERNATE CHANNEL FORMATS

SAIL

TISCO

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MANUFACTURER-BASED
MANUFACTURER DIRECT MANUFACTURER OWNED DISTRIBUTOR MANUFACTURER OUTLET

. X. X. X. . HIGH . HIGH .

. . . X. . LOW . LOW .

RETAILER-BASED SERVICE PROVIDER-BASED

CONTRACT WAREHOUSING ROLLER FRIEGHT OUTSOURCING

DOOR-TO-DOOR FORMAT TECHNOLOGY AIDED FORMAT

TERMS USED: Manufacturer Direct: Product shipped and serviced from manufacturers warehouse and sold by company sales force or agents. SAIL has 24 departmental warehouses which conduct these operations.

Manufacturer Owned Distributor: An acquired distribution company serving the parent companies market. SAIL does not employ any distributor at all. Manufacturer Outlet: Retail product outlets in high-density markets they often sell branded products. TISCO has Steeljunction in Kolkata displaying various forms of its products to the customers.

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Contract Warehousing: Public warehousing services provided for a fee, typically with guaranteed serviced levels. SAIL terms them as Consignment Agent.

Roller Freight: Full truckload is sent from manufacturer to high-density customer materials via the transportation company.

Outsourcing: Service providers sign a contract to provide total management of a companys activities in an area in which the provider has particular expertise. SAIL outsources the loading unloading of products at its warehouses through the Handling Contractor.

Door-to-Door Formats: The products are directly dispatched from the Plant to consumers (high-end) warehouse.

Technology-Aid-Format: Metaljunction is now the largest e-marketplace for steel in the world, having sold over 4 million tonnes of steel for its clients and currently selling at an average rate of 150,000 tonnes per month. It is the online selling portal set-up by a joint venture by SAIL & TISCO.

CHANNEL DESIGNING OF SAIL

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Segmentation: It is the process of splitting of a market into groups of end-users who are maximally similar within each group or maximally different between groups. Segments are best defined on the basis of demands for the outputs of the marketing channel. The value-added services created by channel members and consumed by endusers along with the product purchased are called service outputs.

Bucklin specifies 4 generic service outputs:Bulk Breaking refers to the end-users ability to buy the desired (possibly small) number of units of a product, even though they may be produced in large, batch-production lot size.

Spatial Convenience is provided by market decentralization of wholesale or retail outlets increases consumers satisfaction by reducing the time and effort to reach the product.

Waiting or Deliver Time is defined as the time period that the end user must wait between ordering and receiving the goods.

Product Variety the wider the breadth of assortment or greater the product variety available to the end-user and higher is the output of the marketing channel system and the higher are overall distribution costs.

SERVICE OUTPUT DEMAND DIFFERENCES (SEGMENTATION OF CUSTOMERS, SAIL)

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HIGH-END CUSTOMERS

DEALERS

SERVICE OUTPUT

SOD LEVEL

SOD LEVEL

BULK-BREAKING

LOW

HIGH

SPATIAL CONVENIENCE WAITING & DELIVERY TIME ASSORTMENT AND VARIETY

MODERATE

HIGH

LOW

HIGH

OK

OK

NOTES:
HIGH-END CUSTOMERS: Nowadays this segment of customers is more inclined for door-step delivery of steel products so SAIL is taking all sorts of efforts to fulfill the demand (Door-to Door format of SAIL has increased by 53% in 08) DEALERS: The waiting and delivery time is little bit on a higher side due to first fulfillment of high-end customers demand and then unavailability of products.

Positioning: When the market has been segmented into groups of end-users, each of which can be described by a set of service output demands, the channel manager should next define the optimal channel to serve each segment. The optimal channel is defined first and foremost by the necessary channel flows that must be performed in order to generate the specific segments Service Output Demands (SOD).

MEETING OF SODs-SAIL & TISCO

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SERVICE DEMAND OUTPUT

COMPANY SEGMENT -NAME BULKBREAKING SPATIAL DELIVERYCONVENIENCE WAITING TIME ASSORTMENTVARIETY AVAILABILITY

SAIL

HIGH-END CUSTOMERS DEALERS

LOW

MODERATE

MODERATE

NA

MODERATE

HIGH

HIGH

MODERATE

NA

LOW

TISCO

OEM

LOW

HIGH

LOW

NA

MODERATE

DISTRIBUT OR RETAILER

MODERATE

OK

LOW

NA

HIGH

HIGH

HIGH

MODERATE

MODERATE

OK

Facts that matters:

SAIL: Spatial-Convenience: For high-end customers more stress should be given on Door-to-Door delivery rather than transportation from the warehouses. Delivery & Waiting Time: High-end customers are around (Min-5hrs and Max2 days) from the issuance of the Delivery Order whereas for the dealers the waiting time on an average is 7 days so this needs to shorten. For TISCO both Order. the customer segment waiting time is 7-10 hrs from the issuance of Delivery

DEALER/DISTRIBUTOR

Availability: SAIL has a huge base of customers to look after and a commodity

like steel demand is quite unpredictable so there is shortage of supplies. The more prominent of this problem is faced by dealers rather than the High-end customers.

SUPPLY SIDE CHANNEL ANALYSIS MARKETING FLOW

CONSUMERS

PRODUCER

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PHYSICAL POSSESSION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT

PHYSICAL POSSESSION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT

MARKETING FLOW PHYSICAL POSSESION OWNERSHIP PROMOTION NEGOTIATION FINANCING RISKING ORDERING PAYMENT

SAIL HIGH HIGH LOW MEDIUM LOW LOW LOW LOW

TISCO MEDIUM HIGH HIGH MEDIUM MEDIUM LOW LOW LOW

NOTES: Promotional Activities are minimal for SAIL w.r.t TISCO. SAIL follows a very stringent credit policy for its customers which can be relaxed a bit.

GAP ANALYSIS
Sources of Gap: Gaps in the channel design can come about simply because management has not thought carefully about target end-users demands for service

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outputs or about managing the cost of running their channel. There are mainly 2 sources of gap namely: Environmental Bounds: Two key instances are local legal constraints and the sophistication of the local physical and dealer structures which can cause this form of bound. In Indian Steel Industry legal constraints are of not much concern now after decentralizing the steel industry (1992). The structure of market place has changed previously it was the role of the customers to find the producers now things have reversed with much more competition and brand awareness customers have become choosy hence needing more effort from the producers to make quality product. Due to increase in scarcity of raw-materials the cost of steel is fluctuating a great deal making the market a very dynamic place to survive in. Managerial Bounds: It refers to constraints on the distribution structure arising from rules within a company. SAIL does not really face such bounds but yes they are committed in fulfilling the demand of the high-end customer first then concentrate on the dealers. Types of Gap: Demand Side Gaps: - SOS<SOD [Service Output Supply < Service Output Demand] SOS>SOD [Service Output Supply > Service Output Demand] Supply Side Gap: - A supply side gap exists when the total cost of performing all channel flows jointly is too high. SAIL faces a demand-side gap (when SOS<SOD)

GAP ANALYSIS TEMPLATE (SAIL)

Bulk-breaking Spatial Waiting & Availability

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convenience Level provided (low-ok-high) Efficiency(ok-high cost) Source of problem OK OK Scattered facilities OK OK

Delivery Time high low

Very low Scattered facilities, Poor communication Lack of Information in house 48-hr delivery

low Mismatch between forecasted and actual demand Dynamic market condition Lessen the demand supply mismatch

Environmental-managerial bounds Outcome desired Tactics to close the gap Predicted change in channel performance

Optimum

Optimum

Outsource logistic activities (packing, transporting), Intensive market research and trend analysis. Sales: Going up basically for dealers and small customers. Satisfied customers

Facts: There is a recurring problem of unavailability of products mainly due to dynamic nature of the market place leading the customers to buy in large quantity and stacking in the warehouses even if requirement is not that high. Demand and Supply Mismatch occurs for certain product lines. Intensive market research and trend analysis have to be done regularly by SAIL. More sales effort needs to be dedicated towards dealers and retail customers. Outsourcing the logistic activities (specifically packing and transportation) so to reduce the waiting time to less than 48 hrs.

CHANNEL IMPLEMENTATION STRATEGIES OF SAIL

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 MARKET COVERAGE POLICIES: Implicit in the term market coverage are issues concerned with geography or territory. SAIL channel structure generally follows intensive market coverage. It believes in reaching the customer as quickly and efficiently as possible. Competition among Channel Members: Inter-brand competition (i.e. competition among the dealers, traders of different brand of the same generic product) is prevalent among SAIL members. TISCO provides the stiffest competition in this respect to SAIL. Absolute Confinement: It involves a promise (i.e. contract) by the dealers of SAIL that it will not sell outside its assigned territory. But this policy is not followed by TISCO.

CUSTOMER COVERAGE POLICIES: Suppliers may wish to set policies regarding to whom distributors and dealers may resell their goods or services. For a variety of reasons certain suppliers may wish to reserve certain customers as house-accounts. It includes the desire to maintain close relationships with highly valuable customers, their technical assistance and the efficiency associated with these serving accounts on a direct basis. SAIL also follows this strategy for its high end customers and government clients without using any channel intermediaries. Only for the retail client SAIL goes for Dealers help.

PRICING POLICIES: Generally two types of policies being followed Price Maintenance and Price Discrimination.

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Price Maintenance: In marketing channels is the specification by suppliers, typically manufacturers, of the prices below or above which other channel members may not resell their products. SAIL follows MRRP (Maximum Recommended Retail Price) for its dealers to resell to the retail customers. Price Discrimination: When a seller offers or grants a buyer a lower price than another on the exact same product, the seller is discriminating between the buyers by giving out monetary rewards to few. SAIL has the policy of monetary reward to its high-end customers on lifting a certain quantity of product through TOD (Turn-over Discount), cash discount, Continuity Maintenance discount etc.

PRODUCT LINE 1- TMT bars(8mm)

COMPANY SAIL TISCO ELEGANT KAMDHENU PRICE (p. t.) 43700 43500 42600 42700 MARGIN(per tonne) 1200 1600 1800 1900 COMMENT MRRP According to the market -do-do-

PRODUCT LINE 2- GP SHEET

COMPANY SAIL TISCO LOCAL PRICE(p.t) 49400 49100 48850 DEALER MARGIN (p.t) 1100 1400 1600+

PRODUCT LINE 3- GC SHEETS

COMPANY PRICE MARGIN

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SAIL TISCO LOCAL

49700 49800 49500

1300 NA 1500

PRODUCT LINE POLICIES: SAIL has the most diversified form of product lines that a steel company in India can hardly match with. Apart from the regular steel products like blooms, billets, slabs, TMT, GP/GC sheets there are certain other special application products which are as following:-

SPECIFICATIONS
IS 2830/1992 IS 2831/1975 SAE 1070 ASTM A 105 SAILMA 350 SWR-14 SAIL HCR SAIL BORON CHAIN STEEL HIGH CARBON

APPLICATION
Re-rolling into structurals, rounds and rebars. Commercial grade for re-rolling into structurals. Manufacture of tractor disc Pipe Flanges Re-rolling into high tensile structurals Re-rolling in wire rods Re-rolling into high corrosion resistant rebars Tractor Disc Chain Links Wire rope, cycle spoke, tyre bead etc

CHANNEL POWER
47

Power is the ability of one channel member (A) to get another member (B) to do something it otherwise would not have done. Simply put, power is a potential for influence.

Five Sources of Power:1. Reward Power: A reward is a benefit (or return) given in recompense to a channel member for altering its behavior. 2. Coercive Power: This is the reverse of reward power. Technically, it can be considered negative reward power- a reward that is withheld, that doesnt materialize. 3. Expert Power: It is based on the targets perception that the influencer has special knowledge, useful expertise that the target doesnt possess. 4. Legitimate Power: Generally this stems from the target companys sense that it is in some way obligated to comply with the requests of the influencer. 5. Referent Power: Exists when a channel member (B) views channel member (A) as a standard of reference and therefore wishes to identify publicly with (A) as a matter of prestige.

Sources of Power used By SAIL & TISCO:

TYPE

SAIL

TISCO

COMMENTS(SAIL)

REWARD

LOW

HIGH

Reward are there but not substantial

COERCIVE

LOW

HIGH

SAIL rarely punishes its channel members

EXPERT

HIGH

HIGH

Technology, manufacturing capacity.

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LEGITIMATE

HIGH

HIGH

MoU, Contracts.

REFERENT

HIGH

MODERATE

Customers feel proud to work with sail s quality product

Exercising Power- Influence Strategies: STRATEGY PROMISE THREAT LEGALISTIC REQUEST INORMATION EXCHANGE RECOMMENDATION SAIL . X. . . . . TISCO X. . . . . .

NOTES: SAIL tries to fulfill each and every promise it makes to its customers mentioned in MoUs and Contracts. SAIL also does not believe in punishing its channel members for getting its work done.

SWOT ANALYSIS:

STRENGTHS:
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SAIL is Indias largest steel producer with a turnover of Rs.39, 189 crore in the financial year 2006-07. The company produces the widest spectrum of steel products in the country. SAIL is amongst Indias leading producers of iron ore. The companys captive mines fulfill its entire iron ore requirement. A well developed Product Mix Merger with IISCO would boost its profitability, as SAIL would have access to IISCOs under-utilized iron ore and coalmines. Strong backward integration in key raw material like iron ore and power. All its plants are a profit centers. The single largest rail manufacturer in the world.

WEAKNESSES:
Low liquidity in Stock Exchange (85.82% shares is held by GOI itself) Heavily dependent on import of raw materials (coking coal) It has high operation cost when compared to its peers like Tata Steel, JSW Steel. Concern in obtaining new mining leases and renewal of old leases.

OPPURTUNITIES:
Strong Economy growth (second fastest growing Economy after China) Booming infrastructure sector (Roads, Ports, Airports, SEZs, Power) 50

Strong demand in automobile sector, consumer durables sector and engineering goods sectors. Large consumer base. Low per capita steel consumption offers a higher growth. Low labor cost and high productivity.

THREATS:
Steel prices may remain stumpy on account of oversupply from China Bureaucratic nature of Government - Socio-Political interventions (in leasing mines) Rising interest rates could affect expansion programmes (High cost of Finance) High cost of Energy Big ticket investment by POSCO and Mittal could swallow the market (specifically export)

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PROJECT FINDINGS (Sector-Wise)

DEALERS: It comprises of 1562 in total covering length and breadth of the country. 48 dealers sum up to serve the Eastern region. There is relative lesser number of dealers in Eastern and Central region as SAIL has its plants and warehouses nearby to serve the customers directly. i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. Type of Agreement: - Contract with SAIL indicating product and monthly off-take. Products: - TMT rod, angle, Joist, GP & GC sheets. Quantity: - Minimum 120 tonnes per annum (mixed products). Price: - MRRP is suggested by SAIL for the dealers. Payment: - Advance Payment by Bank Draft/Cheque subject to encashment before delivery. Credit: - Not allowed to dealers. Security Deposit: - Rs 50,000/Delivery: - Ex Dankuni warehouse or directly Plant site in suitable quantity. Transport: - Arranged by SAIL and cost borne by them. Transit Time: - 7 days from the day of issuance of DO. Incentive/Discounts: - On achieving a particular Sales Target the dealers are give cash Discount and SAIL Gaurav Awards. Promotional Activities: - Minimal. Difficulties/Problems: - Sometimes it takes at least 20-30 days to get the goods after making advance payment. There is a transit loss of goods between 40-50 Kg from the warehouse to Dealers godown such type of loss is not found in the case of newly appointed dealers (3 months). Inconsistency in the length and finish of products. Fluctuation in price between order and delivery. Binding and packing of TMT rods are not in consistent manner and are mostly rusted. 52

 CONSUMERS: - SAIL has generally two types of consumers, High-end consumers (<5000 tonnes p.a.) and dealers which include Railways, Calcutta Port Trust, Bharat Macnelly, L&T, Garden Reach Ship Builders, IOCL, Bhusan Steel, Jindal Steel, Simplex Infrastructure and BSNL Telecom Factory. i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. Type of Agreement: - MoU for 1 yr validity Duration of working with SAIL: - More than 25 yrs Products: - LP and FP Quantity: - Minimum 5000 tonnes p.a. Quality: - Excellent w.r.t other products and highly customized. Price: - Depends on the Market (i.e. variable) Payment: - Advance Payment by Bank Draft, Cash payment or Credit. Credit: - 30-60 Days of Interest Free Credit against Bank Guarantee. Delivery: - Ex Dankuni warehouse or directly from Plant site (Direct). Lifting of Goods by the customer: - 5% of MoU quantity every month. Transport: - Mostly customer transport but sometimes SAIL transport. Transit Time: - 1-2 days from the issuance of DO. Incentive/Discounts: - IFC, TOD (Turn-over Discount), Continuity maintenance discount. Difficulties/Problems: - Non-availability of products mainly HR coils. Timely Order Status not known by the customers. Price sometimes is exorbitantly high due to shortage of supply from SAIL.

TRANSPORTERS: - SAIL has the policy of contracting external transporting company through newspaper publications inviting tenders. They engage two transporters for each delivery point (i.e. 24 in eastern region) depending upon the least cost quoted by the transporters (L1, L2 concept). Total of 67 transporters are employed at present for Eastern region. i. Type of Agreement: - Contract for 3 months and extensible to 6 months.

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ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii.

Products: - All types of SAIL products. Security Deposit: - Earnest Money Deposit (25,000-10,000 depending on warehouse capacity). Road Delivery: - 2.5 Lac tonnes (50% increase from previous year) Quantity of loading: - Decided by SAIL according to the requirement. Work Order: - Security in the form of Bank guarantee to the transporters. Payment to the Transporters: - 2 days from the day of completion of the assigned work. Delivery: - Ex Dankuni warehouse or directly from Plant site (Direct). Transit Time: - 1 day from the issuance of WO. Unloading of the Goods: - As per the work Order. Incentive: - NA Penalty imposed on Transporters: - Delay in lifting of goods from the delivery points- 0.5% of Freight Bill. Delayed delivery to the customers.

Difficulties/Problems: - Contract needs to be increased to 1 yr. Transporters are having problem of un-necessary waiting in the warehouses due to certain action of the Handling Agent. TRADERS: - This channel member comes under the category of High-end customers because they execute MoU with SAIL for 1 yr and transact in more than 5,000 tonnes per annum. The customers of these traders can be high-end customers as well as dealers so they act as the role of distributors. Traders generally buy the product from SAIL depending on the market demand and stockup in their warehouses to avail the benefit of market price fluctuations. HANDLING CONTRACTOR: - This contract is given to the company responsible for checking of weights, loading and unloading of goods in the SAIL

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warehouses from the Manufacturing Plant. These contractors bring their own machinery and labors for all the necessary activities. CONSIGNMENT AGENTS: - Another form of distribution system by SAIL is through Consignment Agents at different locations who have their own warehouse/large godowns where materials are directly sent by SAIL through its transport arrangement and in term the Consignment Agents cater to the requirements of nearby SAIL consumers. At present there are 31 CA which is on a rise without owning warehouses by SAIL. CONVERSION AGENT: - 25 in number the work of the conversion agent is convert the semis obtained from SAIL into finished products like pipes, decoiling of rods, rods, PETs.

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RECOMMENDATION:
Appointment of Distributors who will hold stocks of different products in large quantities and meet requirements of the Dealers directly. DEALERSHIP: Exclusive dealership should be practiced making them to work only with SAIL products. SAIL and Dealers interaction should be frequent to educate them about different products and current market scenario. The MRRP should be revised to afford better profitability considering the prices of other manufacturers. The product attribute list may be printed both in English and local languages for better understanding of the consumers. The product quality, consistency, packing and binding for safe handling should be kept under observation by SAIL. Product availability to the dealers should be ensured. Product labeling should be made with metal tags containing product grade, name of the company and size of the material. The lead time for the dealers should be reduced as far as practicable. Dealership monitoring should be done on regular basis. SAIL may consider giving more incentives/rewards to the dealers keeping in view of such offerings by competitors in the market.

CONSUMERS:

56

 A detailed study may be undertaken by SAIL to assess the requirement of the consumers of the various products in relation to quantity so as to ensure availability to its customers. Production planning of particular item should be made keeping in view of the requirements of high-end consumers and availability of the same through the regional warehouses. The Order status should also be made known to the consumers to enable them to make proper schedule of utilization/manufacturing. TRANSPORTERS: The transport contract should be renewed/extended considering their performance and market report. Before engaging the transporters SAIL should ascertain by documentary evidence the number of vehicles owned by the transporters and award the contract considering their capacity. Periodical discussion should be held by SAIL with such transport contractors whenever there is report of shortage of material between warehouses to the customers point. The transport contractors may be advised to carry banner of SAIL when carrying SAIL products to catch people attention and consumers affinity. To ensure better service SAIL should consider escalation of price commensurate with enhancement in fuel prices similarly conditions should be there to reduce the price whenever there is reduction in fuel price. SAIL should consider whether it can reimburse the cost of unloading at the dealers godown from the transport contractors vehicle. PROMOTION:

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 More hoarding and wall paintings portraying different SAIL products should be done at places such as Railway stations, Bus stands, Traffic Police Kiosk in English as well as local languages. Whenever any large scale housing constructions or infrastructure developments are advertised SAIL should put up suitable hoardings and glow signs to promote their particular products. SAIL should hold Focused Group Discussions with engineers, supervisors, masons and also consumers in rural areas to promote their product and also invite suggestions. Gifts and useful goodies should be offered to engineers, workers, builders and consumers. SAIL might consider of employing Outside Advertising Agency for planning and executing promotional activities for a limited period. After sale service may be provided to the purchasers wherever the same is considered necessary. An specialized Management Information System (MIS) should be designed to monitor daily consumption of steel so that future demand could be forecasted and supply could be made on regular basis.

REFERENCES

Websites:
www.wikipedia.com www.steelworld.com

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www.sail.co.in www.steelonthenet.com www.dbresearch.com www.tatasteel.com

Books/Magazines:
Anne T.Coughlan, Eric Anderson, Louis W.Stern, Adel I.El-Ansary (2006), Marketing Channels, 6th Edition, Prentice-Hall of India. Iron & Steel-Review (Vol.51 No.04 Sep.2007) Steel Scenario- A professional Journal of The Iron & Steel Industry and Allied Sectors. (Vol-V17.M9, Mar 08) Survey Of Indian Industry The Hindu (Feb,2008)

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