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Managed Sourcing Service for the Steel Industry
bymjunction services limited
Anirban Sarkar
Monday, March 14, 2011
Agenda
• Imperatives of the Steel Industry today
• Understanding the indirect buy
• About buyjunction
• Sharing our experience
2 Monday, March 14, 2011
Current Market Scenario in Steel IndustryCurrent Market Scenario in Steel Industry
3 Monday, March 14, 2011
• Global Crude Steel Production is back on Upswing:•
1. Annual Global production has registered growth of 15 % till Dec’10 touching 1414 M against 2009 annual production of 1229 MT.
2. China alone has achieved a production of 622 MT for calendar year 2010.
3. Significant production rise witnessed by other leading steel producing countries including Japan, North America, EU amongst others .
4. Present production capacity of India is 70MT with target of 120MT by end of year 2012.
• Rise in Production Trend Triggers Steady Rise in Raw Material Price:
1. Chinese import prices has gone up from $104.5/t in Dec 09 to $ 190 /t on Jan’11.
2. Export price of hard coking coal has witnessed steady rise from East Australian ports as from $145/t FOB (Average price calendar year’09) to $219 /t (Average price calendar year’10) and further to $ 242/t in Jan’11.
3. Coal India has increased Coal prices in Feb-11 which impacts A & B Grade Coal prices by 115% and C, D & E Grades by 30%.
4. Scrap price in China has seen rise from $354/t (incl. VAT) in May’09 to above $480 /t in Jan’11.
(*Source: Steelonnet.com, Asian Metal, MJ reports, SBB)
Current Market Scenario in Steel IndustryCurrent Market Scenario in Steel Industry
Rise in Finished Product Price is not Significant despite Raw Material Price Hike
-The rise in global steel prices post the meltdown is not substantial to pass on the burden of raw material price hike.
-Price rise could not be sustained as demand remained relatively poor, mainly in Flat Products causing significant pressure on margin and profitability.
Existing Challenges of The Steel Industry
• No infrastructure revamp is planned in view of the expected surge in Imports as country hopes to build up production capacity 120 mt by 2012-13.
• None of the Greenfield projects have set off due to land issues thus capping the capacity increase. • Domestic steel makers continue to depend on imported coking coal.• There is relatively less control of raw material price as well as product price which is determined in the
international market.
So how do you protect your margins and continue to grow in these tough conditions?
4 Monday, March 14, 2011
Compelling changesCompelling changes
Learn more about your indirect buys and renew your strategy.
Streamline your supply chain processes.
Digitize your procurement workflow.
Increase contract coverage for your revenue purchase
Focus and deploy more resources on your direct buys.
5 Monday, March 14, 2011
Agenda
• Imperatives of the Steel Industry today
• Understanding the indirect buy
• About buyjunction
• Sharing our experience
6 Monday, March 14, 2011
Identifying your indirect buyIdentifying your indirect buy
Strategic to Buyer
Procurem
ent S
pend
High
Efficient Buying
Operational ‐ Transactional
• Reduce Cycle Time
• Streamline Resources
• Digitize Documentation
• Reduce Sourcing Costs
Initialize Migrate
Strategic & Project
• Knowledge Based Buying
• New Vendor Discovery
• Material Cost ReductionInitialize Migrate
Knowledge Buying
Strategic & Project
• Knowledge Based Buying
• New Vendor Discovery
• Material Cost ReductionInitialize Migrate
Full Source
Efficient Buying
High
Low
Low
7Monday, March 14, 2011
Indirect Spend in Steel Companies Indirect Spend in Steel Companies
Pumps
MRO Expenses
Power Transmission
Chemicals& Lubes
FluidPower
Filtrations
HVAC &DG
ElectricalAccessories
Electronics &Lab Supplies
Pipes, Valves& Fittings
SafetySupplies
Hardware
ConveyorBelting
IndustrialSupplies
BuildingSupplies
OEM SpareParts
Mobile Equipment
Services
Janitorial
Yards/Grounds
Security
MachineRepair
HVAC, DGMaintenance
Roofing
Machining& Fabrication
Logistics &Handling
WasteDisposal
Environment
Temp Labour& Contractor
Packaging&
Unitization
Flooring &Painting
TelecomExpenses
IT Services
Travel
8Monday, March 14, 2011
Indirect Spend is a Key Consideration Indirect Spend is a Key Consideration
Constitutes ~ 30 ‐ 40 % of the total spend of an organization.
Off contract buying can be as high as 50%
It is significant in size. For an integrated steel company, indirect spend is often
Rs. 1,000+ Crores (200 mill USD +) per annum.
It is on an increasing trend as companies outsource more & more maintenance
services.
Accounts for ~ 70 – 90 % of all POs & invoices processed.
Surprisingly easy to achieve savings ( low hanging fruits).
9Monday, March 14, 2011
Key Challenges & Mitigation Strategies Adopted by Steel CompanieKey Challenges & Mitigation Strategies Adopted by Steel Companiess
Key Challenges in Indirect Spend Management Mitigation Strategies Adopted
Huge variety of materials & supplies
Difficult to build procurement competency in
such a large variety of materials & supplies
Day to day management takes up large
bandwidth of procurement
Lack of indirect spend visibility
Low churn among suppliers
Challenge of managing cost, quality &
delivery
Planning
1. Understanding the items you buy.
2. Form top level strategy
Technology adoption
1. Spend Management
2. e-Procurement workflow
Actual execution
1. Equip your procurement team.
2. Adopt Managed Sourcing
3. Increase contracts in place
4. Reduce off contract buying
5. Manage spot buying effectively.
10Monday, March 14, 2011
Evaluation of Managed Services ProvidersEvaluation of Managed Services Providers
1. Expertise: Does the potential partner have category expertise in the categories to
be outsourced?
2. Technology: Can the service provider leverage technology to automate
Procurement process?
3. Supplier Network: Will the service provider be able to increase or decrease the
number of suppliers by category?
4. Savings: Can the service provider sustain the savings over time ?
5. References: Does the potential service provider have adequate references ?
11Monday, March 14, 2011
Agenda
• Imperatives of the Steel Industry today
• Understanding the indirect buy
• About buyjunction
• Sharing our experience
12 Monday, March 14, 2011
Year on Year Growth of Transactional Value at buyjunction
Selected Clientele Ferrous & Non-Ferrous:TATA Steel & it’s SBU’sJindal Steel & Power Limited (JSPL)Hindalco (Aditya Birla Group)SAIL (All Plants & Projects)Monnet Ispat
Power: TATA Power, NDPL, CESCDefense: Ordnance Factory Board
Industrial, Heavy Engineering:Garden Reach ShipbuildersBridge & Roof CompanySimplex Infrastructure LimitedPhillips Carbon Black Limited (RPG)
Telecom: TATA TeleservicesTATA Communication
Cement: Dalmia Cement, Birla CorpFMCG: Emami, ITC, Berger
Fertilizers & Chemicals:TATA Chemicals, Grasim Industries
Reverse Auction
Eprocurement systems
Sour
cing
Pro
cess
Evo
lutio
n
$ 0.14 Bn
$ 0.15 Bn
$ 0.23 Bn
20082003 2004
$ 0.08 Bn
2005 2006 2007
$ 0.58 Bn
Assisted Sourcing
Transaction Value
2009
$ 0.82 Bn
2010
Over USD 3.3 BnCrores worth
of materials and services
sourced online
$ 1.33 Bn
Managed Sourcing
Aggregated Buying
Monday, March 14, 2011
Our sourcing and procurement services
Sl. No. Service Name The need it addresses
1 Online Price Discovery
1. Transparency in Price Discovery.2. Material / Services Cost Reduction3. Reduction in Cycle Time
2 Assisted Sourcing Assist clients in sourcing and procurement in select categories to deliver best value deals for them
3 Managed Services1. Improve procurement related SLA & efficiency.2. Provide transactional support.3. Provide mechanism for spot buys.
4 Eprocurement platform
Develop / host / manage eprocurement platform on ASP mode
5 Aggregated Buying Program
Leverage group buying power to finalize rate contract of indirect items for group companies
14 Monday, March 14, 2011
Agenda
• Imperatives of the Steel Industry today
• Understanding the indirect buy
• About buyjunction
• Sharing our experience
15 Monday, March 14, 2011
Six Layers of Purchase Management in Managed Sourcing
Requirement Collection and Review
Procurement Budget Formulation
Requirement Finalization
Approve Requirements and Budgets
Monitorand Report
AccountsAcceptOrderRequest
Purchase Management processes
PlanPlan Request
Request Preparation
Request Assessment
Request Approval
Order
Choose Appropriate Vendor(s)
Freeze Terms and Conditions
Release order
Accept
Receive Materials/Services
Verify Conformance to Ordered Requirements
Confirm Receipt
Account
Receive Invoices
Reconcile
Pay Invoice
Input Transaction Data
Monitorand Report
Periodic Reporting & Reviews
Data Analytics
Process Reviews
Identify Corrective & Preventive Actions
Continual Process Improvement
VendorMaster
MaterialMaster
ServiceMaster
ContractMaster
16Monday, March 14, 2011
Managed sourcing for a new client
1. 71 % of PRs contribute only 2.62 % of the spend
2. Avg. Cycle time from MPR to placement of PO was 90 days approx
3. The professional acumen of Purchase Officers is not being utilized properly
due time spend in procuring Low-Value High Volume items which are non
Critical and have low impact
4. Large scale reduction in Non-Executive manpower in the last 3 years.
Last 3 years analysis of PRs at a client unit revealed that :
CaseStudy 1
Engagement in a steel company
Status (FY11)
Mechanical Electrical General Services
1. Instruments2. Valves3. PLC Drives & Systems, Encodersand spares4. Motors5. Cables6. Switches7. Wiring Accessories8.Brakes9. Fuses
10. Computer Items11. Telecom
1. Glass Apparatus2. Non-Ferrous Materials3. Clothes & GunnyBags4. Papers5. Sheet Glass Panes6. Door Fittings7. Canteen Utensils
1. Civil Maintenance
2. Mechanical3. Electrical4. Housekeeping5. Cleaning Jobs6. Packaging & Unitization7. Handling &Transportation8. Hiring Jobs9. IT Services
10. Refractory11. Travel12. Gardening
1. Mills Spare2. Hose, Clamps& Accessories3. Blowers & Boosters, Fans4. Couplings5. Rubber Items6. Abrasives, Grinding Wheels7. Industrial Valves8. Screens9. M/c Tools
10. Gear Boxes11. Electrodes12. Oil Seals13. Hydraulics
CaseStudy 2
18 Monday, March 14, 2011
Process Flow for Managed Sourcing ServicesProcess Flow for Managed Sourcing Services
Create RFQ on suppliers
For offline negotiation
Transmits approved indent along with supplier details
Follow up for quotation
Open quotation
Conduct negotiation
Prepare comparison statement
Give quotation
Design eAuction strategy
Train bidders
Conduct & manage event
Send auction report
Approves and releases order
Get trained in eAuction
Take part in
eAuction
Confirm bid
For online negotiation
Prepare draftorder
Approves newsuppliers
Check indentSuggest new suppliers
CaseStudy 2
19Monday, March 14, 2011
Summary and ConclusionSummary and Conclusion
Indirect materials are an important segment of your procurement volume.
Addition of capacity, expertise in procurement workflow processes and
technology adoption is required.
Managed Services is a key enabler for the Steel Industry to evolve and
manage its indirect buys.
Q & A
Monday, March 14, 201122