Submitted by Group 12

Nitin Bighane(224)Subhashini Iyer(197)

Seema Devi(235)

Strategic Procurement and Materials Management Assignment

Industry : Cables and wires

PART A•Select an Industry of your choice and identify one company you want analyze further•Make a macro level of Spend analysis of major heads (use Prowess ). Identify at least 10-15 items that Sourcing team is responsible for this spend.•With reference to the vision/mission statement (as available on company website) & corporate strategy, list down 4-5 purchasing goals this company probably could pursue.similar

Assignment

Industry Overview

Average Industry Sales Growth from 2007 to 2012 has been 14.01 %

• The wire and cable industry has moved from being a small industry 20 years back to a very large industry over the last decade. Even though it is a volume-driven product, it has a lot of quality and technical particulars.

• Currently it is a ₹ 15,000 crore industry• The wire and cable industry comprises

40% of the entire electrical industry, which is expected to double in size over the next five years.

• The industry is growing at a CAGR of 15% as a result of growth in the power and infrastructure segments, expected to grow at similar rate for the next five years

2007-08 2008-09 2009-2010

2010-11 2010-11

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%28.09%

9.98%

-3.43%

18.74%16.67%

Wire Industry Sales GrowthGrowth Average

Operating Expense Constituents(%) for Industry2007 2008 2009 2010 2011 2012

Raw materials, stores & spares 74.04 74.45 76.56 77.17 78.69 78.63 Purchase of finished goods 1.39 1.39 1.51 1.69 1.46 1.32

Packaging and packing expenses 1.48 1.65 1.84 2.05 1.95 2.04 Power, fuel & water charges 1.72 1.75 1.89 2.01 1.78 1.87 Compensation to employees 2.66 2.76 2.80 3.09 2.73 2.74 Indirect taxes 12.62 11.81 8.85 6.74 7.05 7.01 Royalties, technical know-how fees, etc 0.00 0.01 0.04 0.05 0.01 0.01 Rent & lease rent 0.15 0.20 0.22 0.24 0.20 0.18 Repairs & maintenance 0.40 0.40 0.38 0.40 0.32 0.32 Insurance premium paid 0.14 0.11 0.09 0.10 0.10 0.10 Outsourced manufacturing jobs 1.18 1.28 1.27 1.28 1.09 0.97 Outsourced professional jobs 0.21 0.18 0.21 0.26 0.17 0.18 Non-executive directors' fees 0.00 0.01 0.00 0.01 0.00 0.00 Selling & distribution expenses 2.54 2.63 2.85 3.00 2.89 2.67 Travel expenses 0.29 0.29 0.27 0.31 0.30 0.30 Communications expenses 0.07 0.06 0.06 0.06 0.04 0.04 Printing & stationery expenses 0.02 0.02 0.01 0.02 0.02 0.01 Miscellaneous expenditure 0.91 0.85 0.96 1.12 0.89 1.10 Other operational exp of industrial ent 0.15 0.16 0.17 0.35 0.27 0.50 Other operational exp of non-fin services ent 0.01 0.02 0.01 0.05 0.02 0.01

Share of loss in other enterprises 0.00 0.00 0.00 0.00 0.00 0.00

Industry Spend Analysis

J a n - 0 7 J a n - 0 8 J a n - 0 9 J a n - 1 0 J a n - 1 1 J a n - 1 2

68.6969.74

71.17 71.89

75.8174.32

Raw Material , stores & spares cost per Sales Revenue(%)

Series1

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-120.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Major Constituents of Operating Expense

Raw materials, stores & spares Purchase of finished goods Packaging and packing expenses

Diamond Power Infrastructure Ltd.

• Diamond Power Infrastructure Ltd. has always outperformed the industry.• It is one of the top 5 cable manufacturers• Launched India’s first 500kv UHV cable• large capacities in conductors (India's second largest), power cables (India's third largest), power

and distribution transformers (India's third largest)

2008-09 2009-2010

2010-11 2010-11 2011-120.00%

10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

25.76%

2.20%

94.09%

44.02%

27.77%38.77%

Diamond Power Sales Growth Rate

Growth Average

Flexible Wires & Cables • Single & Multi Core Flexible Cables (IS 694:1990) of Voltage

Grade 1100V • Conductor with frozen geometry and stable profile• Lower resistance value for increased power saving• Dual layer insulation for improved dielectric strength• Eliminates current leakage for enhanced safety• Flame retardant cables made of Electrolytic grade, bright plain

annealed copper conductor, as per IS: 8130 – 1984

Quality Certifications • The products are quality tested and approved by leading

organizations which include: • Central Power Research Institute, Bangalore• TAG Corporation, Chennai• Govt. Testing Laboratory• Bureau of Indian Standards Labs

Product Portfolio:

Product Portfolio

Major Clients

State Government Electricity Board

• Assam State Electricity Board

• Chttisgardh State Electricity Board, Raipur

• Dakshin Gujarat Vij Company Ltd.

• Dakshin Hayana Bijli Vitran Ltd., Hisar

• Gujarat Alkalies Chemical Ltd.

Central Government Firms

• Bharat Heavy Electricals Limited, Tamil Naidu

• Electrical Research and Development Association

• NTPC, Unchahar & Sonebhadra

• Power Grid Corporation of India Limited

• Research Design And Standard Organisation

Private Firms

• Ispat Industries Ltd.• Jindal Polyfilms Ltd.• Kalpataru Power

Transmission Ltd.• Kandla Port Trust• Kirloskar Electric Co.

Ltd.• L & T, Ahmedabad

Operating Expense Constituents(%)

2008 2009 2010 2011 2012 2013 Raw materials, stores & spares 90.57 93.48 92.29 95.64 96.03 95.61 Purchase of finished goods 0.00 0.00 0.00 0.00 0.00 0.00 Packaging and packing expenses 0.48 0.55 0.86 0.77 0.75 0.69 Power, fuel & water charges 0.76 0.90 0.70 0.70 0.52 0.61 Compensation to employees 0.98 1.01 1.39 0.73 0.81 0.73 Indirect taxes 5.42 2.68 2.10 0.03 0.46 0.51

Royalties, technical know-how fees, etc 0.00 0.00 0.00 0.00 0.00 0.00 Rent & lease rent 0.09 0.08 0.11 0.07 0.05 0.06 Repairs & maintenance 0.15 0.08 0.11 0.10 0.07 0.07 Insurance premium paid 0.02 0.03 0.06 0.02 0.01 0.02 Outsourced manufacturing jobs 0.00 0.48 0.79 0.63 0.42 0.59 Outsourced professional jobs 0.19 0.21 0.36 0.20 0.13 0.13 Non-executive directors' fees 0.00 0.00 0.00 0.00 0.00 0.00 Selling & distribution expenses 0.57 0.32 1.04 0.98 0.61 0.82 Travel expenses 0.10 0.10 0.08 0.04 0.07 0.07 Communications expenses 0.04 0.01 0.01 0.01 0.00 0.00 Printing & stationery expenses 0.03 0.02 0.01 0.01 0.01 0.01 Miscellaneous expenditure 0.03 0.02 0.05 0.05 0.04 0.04

Other operational exp of industrial ent 0.58 0.03 0.03 0.03 0.01 0.02

Other operational exp of non-fin services ent 0.00 0.00 0.00 0.00 0.00 0.00 Share of loss in other enterprises 0.00 0.00 0.00 0.00 0.00 0.00

Buying Decisions Made by ProcurementDepartment

8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

80.98%89.57% 83.36% 85.48%

101.30%93.30%

Raw Material, stores & spares cost per Sales Revenue(%)

2008 2009 2010 2011 2012 201386

88

90

92

94

96

98

90.57

93.4892.29

95.64 96.03 95.610

0

0

0 0 0

0.48

0.550.86

0.77 0.750.69

Major Constituents of Operating Expense

Raw materials, stores & spares Purchase of finished goods Packaging and packing expenses

Spend Analysis

Major Raw Material

Raw material Measure Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

(Rs. Million - Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths

Aluminium Quantity 22,565.0028,900.0

041,300.0

0 49,600.00 72,892.00

Unit Tonnes Tonnes Tonnes Tonnes Tonnes

Rs. Million 4,191.40 5,527.70 6,352.00 10,980.70 16,822.90

Copper Quantity 656 1,300.00 1,500.00 1,955.00 2,321.00

Unit Tonnes Tonnes Tonnes Tonnes Tonnes

Rs. Million

COMPANY’S PHILOSOPHY

• A Philosophy of continuous improvement and the use of cutting-edge technologies

• Vision• “Enable and Enrich”

• Concerted efforts to provide the most innovative and superior power solutions

• Strong focus on quality and customer delight

–Motto–“Empower and Enhance”

–Core Belief–“To implement what we imagine”

OBSERVATION ON THE COMPANY

• Believes in being a comprehensive one-stop solutions provider, delivering everything from EPC services to almost all types of power equipments in the transmission and distribution space.

• Large scale of operations• It ‘makes’ the finished goods products and procures none.• The raw materials expense / sales revenue is as high as ~ 90%.

Comparison with the Market Leader

Aluminium Procurement Cost Mar-10 Mar-11

Diamond Power Infrastructure Ltd.Quantity(tons) 41,300.00 49,600.00

Rs. Million 6,352.00 10,980.70

PolyCab Wires Pvt. Ltd.(MARKET LEADER)

Quantity(tons) 42,070.39 54,358.26

Rs. Million 3,489.50 6,611.60

PROCUREMENT GOALS

• Focus on procuring raw materials at better prices• Leverage on the economies of scale of production for major turn-key

projects• Divide the procurement strategy into a minimum consistent demand

and variable demand• For minimum consistent demand build trust and strong relationship

with vendors in order to provide world-class single-window solutions to customers at a good price

• For variable demand go for transactional and bidding based purchase

• Develop a portfolio analysis (for items identified in step 2)

• List /identify problems that this company would have experienced with these items in the past, identify future problems and opportunities

PART B

Develop a portfolio analysis Leverage Critical

Aluminium WireAluminium Rod

Steel PVC

Copper WireXLPE Copper RodsThermoplast

Wooden / Steel Drum

Routine Bottleneck

Annu

al S

pend

Low HighSupply Risk

High

Low

List /identify problems that this company would have experienced with these items in the past, identify future problems and opportunities

Issue with fluctuating prices of copper in India

• The recent order of the Tamil Nadu Pollution Control Board (TNPCB) asking Sterlite Industries(India's biggest copper smelter) to immediately shut down its copper smelter in Tuticorin for 1 week that pushed copper prices higher in India in the short term

• The copper demand in India is currently not very strong and companies do have inventory build ups so If the shutdown is prolonged then there might be an upward move in copper prices

• Sterlite Industries' STRL.NS plant, which meets half of India's copper demand, was closed on March 30 after residents complained of emissions that led to breathing problems

• The plant produces 30,000 tonnes of refined copper a month - or more than half of India's total production

• Cashing in on regional oversupply after the Sterlite closure, smelters across Asia started charging the highest fees in five months to process concentrates.

Future problems and opportunities

Future Problems

• Operational Risk – resulting from production stoppages, risk of present technology being outdated and business process failure

• Market Related Risk – arising out of competition, fluctuation in copper metal prices, quality assurances, customer satisfaction

• Financial Risk – pertaining to fluctuation in currencies, liquidity problems, capital availability

Opportunities

• High level of service from supplier of Steel and PVC as these are Leverage item for the company which include supplier capabilities such as management of onsite inventory, e-purchasing capability and ability to respond quickly to our requirement

• Higher level of quality from supplier of these raw material

• Reduction in the total cost of raw material to business

PART C• Develop a comprehensive Supply Market

Research for 2 items identified in each quadrant.• Propose appropriate Sourcing strategy with an

action plan –Insourcing vs Outsourcing (Make or Buy) –Identify one item/process that can be globally sourced and list down the likely barriers in sourcing from global sources along with a listing of the risks associated.

Develop a comprehensive Supply Market Research for 2 items identified in each quadrant

Raw Material Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5

aluminium Rods Hindalco Nalco Sacheta Metals PG Foils Hind Aluminium

aluminium WiresMahavir Metal Corporation, Mumbai

Sanghvi Overseas, Mumbai

Solitaire Impex, Mumbai

Grand Metal Corporation, Mumbai

Vijay Trading Corporation, Bengaluru

copper Rods Sterlite Hisdustan Copper HindalcoJhagadia Copper Limited Birla Copper

copper WiresKrishna Copper Private Limited, Mumbai

Sanghvi Overseas, Mumbai

ARJE Copper Pvt. Ltd., Mumbai

Krishna Copper Private Limited, Mumbai

Vijay Trading Corporation, Bengaluru

PVC compound ,PVC tape,PVC fillers Acme Plastics, Faridabad

Suvarna Additives Private Limited, Navi Mumbai

Meet Marketing Private Limited, Ahmedabad

Real Polymers, Ahmedabad

Hwashin Industries Private Limited, Agra

Steel Tata SteelRatandeep Hardware & Electricals CELECTRO POWERS

PRATHAM ENTERPRISE

J. K. STEEL CORPORATION

XLPE compound

Newgen Specialty Plastics Ltd, Greater Noida

Polylink Polymers India Limited, Ahmedabad

Rajda Industries & Exports Limited, Kolkata

BLS Polymers Limited, New Delhi

Apratim International Pvt Ltd, New Delhi

wooden drum/steel drum

M. R. Packaging, Greater Noida SS Air Tools, Chennai

Industrial Steel Rolling Mill & Co., Kalyan

Suresh Timber Co., Vadodara

J & D Industries, Thane

thermoplastic sheaths

Osaka Rubber Private Limited, Mumbai

Maharashtra Polymer Products, Thane

Newgen Specialty Plastics Ltd., Noida

Technovinyl Polymers India Ltd., Mumbai

Sperry Plast Limited., New Delhi

Financial Analysis of Critical Raw Material Supplier(Aluminium)

CompanyNo of Days in working

Capital Current Ratio Working Capital(in Cr.)

Hindalco 103 1.26 3560

Nalco 146 1.64 1005

Sacheta Metals 179 0.88 28

PG Foils 194 1.03 86

Hind Aluminium 82 0.80 82

Analysis of Copper Suppliers

Hindustan Copper Limited •Capacity:- Current: 3.4 million tonne per annum (32000 T copper metal) Projected: 12.4 million tonne per annum (1, 25,000 T copper metal) by 2017

Hindalco•Increased smelter capacity from 1,00,000 tpa in 1998 to 5,00,000 tpa

Sterlite Industries Ltd. •Installed Capacity: Current - 9,995,000 MT Projected : 1,449,500 T by 2015. •ii) Demand: Current - 5,70,000 MT Projected - 1,227,900 MT by 2015 considering 8% growth rate

Identify one item/process that can be globally sourced and list down the likely barriers in sourcing from global sources along with a listing of the risks

associated.

• Import duty 2.5%• Aluminum (8mm rod):– International price range: ₹ 60/Kg to ₹ 300/Kg– Current procurement cost: ₹ 230/Kg

• Copper (8mm rod):– International price range: ₹210/Kg to ₹ 720/Kg– Current procurement cost: ₹ 460/Kg