Supply chain management is the management of the flows of material and information, which are managed between facilities such as vendor, manufacturer and distributor. It performs functions of procurement of material, transformation of material into the finished goods and distribution of these finished goods to customers. Its strategy is to coordinate the various organizations’ objectives in order to increase the efficiency of the entire supply chain. Thomas & Griffin classified the operational coordination of the supply chain management into three categories; buyer – vendor coordination, production-distribution coordination and inventory- distribution.
A supply chain management is a network of firm’s activities, organizations, and the technologies that performs the function of procurement of raw material from vendor firms, transformation of this material into intermediate and finished products and distribution of this finished products to the customers. The logistics concerns moving material, raw and finished;
- Materials management plus physical distribution management equals logistics management
- Supply chain encompasses logistics activities, with manufacturing planning added.
- Supply chain looks at material flow from raw-material acquisition, through all value-added steps, to customer delivery
Steel is an important indicator to analyze the economic development of a country. The steel industry is highly scientific and technology oriented. Technological advancement is very important for the overall health of the steel industry. The steel industry depends on three major categories of supplies for the procurement of raw materials:
- Minerals (iron ore, limestone etc)
Hence this industry needs a well designed a methodology for SCM, wherein it may be controlling the production of the raw materials to an extent, and depending on demand, supplement it with externally supplied raw material. The supply chain in this case needs to be totally integrated, as a shortfall in this case can lead to closing of the furnaces that can lead to their closure, leading to substantial economic and material loss.
In the steel industry, the supply chain, apart from actual production, is an extremely complex task, requiring the consideration of numerous factors and objectives. Sharply fluctuating demand, raw materials supply and uncertain prices produce a negative impact on steel production. At the same time, the supply chain of the steel industry has to consider multiple objectives and multiple stages of steel production and supply chain simultaneously in a global market. It requires an optimized supply chain alternative by extending visibility of demand based on economy and market, raw material supply based on transportation, and suppliers and their price.
Model of the general organization of the supply chain management in steel industry
- Step 1 – Customer Service Strategy: It is a premise that the firm has already gone through the process of establishing a corporate- wide business strategy, i. e. ,has well- determined lines of business, core competencies, growth objectives, and stakeholder commitments. From a supply chain strategy perspective, the execution of the business strategy will involve understanding and setting customer service requirements of each product-market segment, identifying opportunities for differentiation (Shapiro, 1984), and deciding on strategic responses to customer requirements in order to maximize revenue with the most efficient use of capital resources. Hence through a well-defined supply chain strategy, it is possible to substantially improve the seemingly Conflicting goals of shareholder wealth and customer service.
- Step 2 – Network Configuration: This step primarily involves the determination of the Supply chain network, i. e. , choosing the channels of supply and distribution (Fisher, 1997) and defining the best supply chain network options and associated costs of offering varying levels of service. This includes choosing the optimal number, location, role, associated linkages, and aggregate plans of each channel partner. Once the supply chain network is defined and put into place, it very much determines the levels of service it can provide to customers. Through network configuration the different product, information, cash, and process flows in the supply chain, is identified and analysis is made to position resources to optimize these flows. For example, if the customer service strategy is growth-oriented with a premium on mass-customization, the product flows can be altered via several means such as postponement or process reversal – to optimize for this strategy.
- Step 3 – Demand and Supply Planning: This stage of planning determines the exact flow and timing of materials such as raw material release to manufacturing facilities, or finished goods to the distribution centers or customer markets. The network configuration phase has already determined the locations, origins, and destinations of these material flows. The material flow and timing decisions are typically arrived at by using time-phased, or requirements planning, techniques, working from the forecasted demand back through the supply chain to the raw material sources. Additionally, examples abound of firms using specialized demand and supply planning procedures, Collaborative Planning, Forecasting, and Replenishment (CPFR), Efficient Consumer Response (ECR), Quick Response (QR) On the out-bound side; and Vendor Managed Inventory (VMI), Continuous Replenishment (CRP), and JIT on the inbound side.
- Step 4 – Transaction Processing and Short Term Scheduling: Customer orders arrive at random and they are assigned to a predetermined (by supply chain configuration methods) location and carrier. The flow of this order (timing and quantity) through the supply chain is already determined by the demand and supply planning process. Transaction processing is therefore more like a day-to-day accounting system, tracking and scheduling every order to meet customer demand. Sample transactions include order entry at the retail markets; physical replenishment and order fulfillment of the goods at the distribution centers; material releases and purchase orders at the manufacturing facility.
Transforming a business to address the needs of today’s marketplace requires effectively managing the flow of information across key operational interfaces like supplier-procurement, raw material-production, operations-maintenance, product-distribution, retail-customer – in other words, the extended supply chain of the organization.
The Tata group is India’s best- known conglomerate in the private sector with a turnover of around US $ 10. 4 billion (equivalent to 2. 4 % of India’s GDP). Long known for its adherence to business ethics, it is India’s most respected private business group.
With 219,000 employees across 94 companies, it is also India’s largest employer in the private sector. As a steel maker, Tata Steel is not one of the worlds biggest. Despite having doubled production to almost 3. 5 million tons over the past 20 years, it accounts for only a moderate slice of the Indian market of 25 million tons (and a tiny silver of the world market of 830 million tons). But it can justifiably claim to be one of the world’s best. At an average manufacturing cost of about $155 per tonne (ex-gate), it has nearly matched the efficiencies of Shanghai-based BaoSteel. And it scores higher on several qualitative measures.
Tata Steel has taken a bold step in creating ‘customer account managers ‘who are empowered to a surprising extent for a company that was once famous for its command-and-control structure. This way, these managers get to spend most of their time on external customer issues (instead of wrangling deals for them at the back-end). Tata Steel has started treating its own department’s as customers. Russi Mody, who went to extraordinary lengths to win staff dedication. According to a world Steel Dynamics report, soft issues such as labor harmony and commitment are differentiators that do work in the company’s favor.
Tata Steel is undergoing a major restructuring of supply chain management and the replenishment process under the Theory of Constraints initiative. The pilot projects, rolled under the initiative, have started yielding results in reducing stock outs and enhancing sales, claim company sources. The marketing and sales wings of the company are rolling out offers to various customers’ segments depending on their requirements. Thus, replenishment offers are being made to distributors while vendor managed inventory offers to original equipment customers, auto offers to auto customers and rapid response offers to some other selected customers.
The essence of these offers, as it is pointed out, is to guarantee top-class service performance in terms of reliability of delivery at significantly reduced lead time. However, as the sources point out, the rolling out of offers would not have been possible without redesigning the supply chain management through various measures such as joint identification of products covered in the offer, establishment of reliable replenishment time from the upstream manufacturing operations to the plant warehouse, then to regional warehouse/ stockyard and finally to customer, providing IT facilities for reporting aily consumption and receipt data by distributors and stockyards, calculating inventory requirement at various levels based on consumption within the reliable replenishment time, aligning sale planning and production planning and logistics to achieve the optimum results and finally strict monitoring of service performance.
In the case of flat products, the supply chain design is being dovetailed with i2 supply chain platform recently implemented. Several benefits have followed from these initiatives, according to company sources. These include the ability to provide a reliable service in terms of delivery at significantly reduced time in certain areas, a reduction in overall system inventory, aligning supply closely with demand, improving inventory situation at the distributor and customer levels and, as a cumulative effect of all these, increasing the return on capital.
The majority of companies cannot compete on the basis of price alone, some sort of differentiation is necessary. The internet coupled with other computer technologies, allow companies new avenues to distinguish themselves from their competition. One of these avenues is supply chain management, supply chain management allows a company to reduce its costs, create opportunities to increase value for its customers and increase its competitive ability in the market.
- Sunil Chopra, Peter Meindl; Supply Chain Management Strategy Planning ; Operation, Pearson Education, 2nd ed. 2004
- Guangyu Xiong, Petri Helo; Challenges to the supply chain in the steel industry
- Dr. K. K Agarwal and Manoj K Rakesh; Supply Chain Management practices in India (A Case study of TISCO )
- Santanu Sanyal; Tata Steel revamping supply chain management; Business Line; Kolkata, July 21