Cases for

Strategy & Supply Chain Management

Table of Contents
Developing a Sustainable Growth Strategy 3
Sustainability in Logistics & Warehousing 4
Contracting Strategy for Transportation Services 5





Developing a Sustainable Growth Strategy

Background
Tata Steel founded Indias first industrial city, now Jamshedpur, where it established Indias first
integrated steel plant in 1907. Over the next 9 decades, steel capacity at Jamshedpur increased by a
mere 3 mill tons due to various reasons including Govt restrictions on capacity hikes. With the advent of
the next century and keeping pace with Indias robust economic growth, the company grew from 3.5 mt
in 2001 to 10 mt in 2013. With Steel capacities in SE Asia and Europe, Tata Steel is amongst the Top 10
Steel producers in the world today.
The next major phase of growth in India is in an advanced stage with commissioning of 3 mtpa
Greenfield Steel Plant in Odisha in Phase 1 by end of FY15 and another 3 mtpa in Phase 2.
Tata Steels internationalisation strategy started in the last decade with the acquisition of NatSteel,
Singapore with a capacity of about 2 million tonnes per annum of finished steel. In 2005, Tata Steel
acquired majority stake in Millennium Steel, a Thailand based steelmaker. Natsteel gave a wide footprint
to Tata Steel in SE Asia as it had finishing and downstream units in various countries like China, Australia,
Vietnam, Malaysia, etc. However, Tata Steel truly became global with acquisition of European steel
maker, Corus in 2007 which brought a new wave as it was the largest international acquisition by an
Indian company till date with an acquisition value of over USD12 billion. This made Tata Steel the second
largest geographically spread Steel maker in the world and amongst the Top 5 in the world.
The Global Financial crisis in 2008 hit the European economy very badly and slowed economic activity all
around the world. While the Indian Steel plant of Tata Steel is highly competitive with its own captive
sources of raw materials, the overseas Steel mills have had to procure raw material from the market.
Problem Statement:
1. With some early signs of revival in the global economy, is it time for Tata Steel to consolidate on
its international acquisitions?
2. How and where should Tata Steel grow to remain relevant in its chosen segments of automotive
and construction?
3. Develop a growth strategy with a plan for organic or inorganic growth across key geographies in
India and abroad to become a leader in the industry.




Sustainability in Logistics & Warehousing

Steel Industry in India
Steel requirement in Indian markets have been growing at a CAGR of 8.8% over the last five years and is
expected to grow to at least 105 MT by FY 17. Infrastructure is Indias largest steel consumer, accounting
for 63 per cent of total consumption in FY11.
With an expected growth of over 9 % in steel consumption, crude steel production capacity is expected
to grow from 89 MT in FY 12 to 149 MT in FY 17.
Transportation Industry in India
Logistics is a nascent and fragmented industry in India. This is despite the fact that last few years of high
growth in Indian Economy have resulted in a significant rise in volume of freight traffic.
Various estimates put the market size of the logistics sector in India to be between INR 6000-7500
billion. Given that the Indian economy has grown to over INR 90 trillion these estimates may already be
well below the actual size of the industry. Reports also estimate that the industry employs over 45
million people and is growing at the rate of 15% with sub-sector growing at even 30-40% per annum.
Roads continue to constitute the most significant component of Indias logistics industry, accounting for
60 per cent of total freight movement in the country. This is despite the fact that there are many
challenges facing the road transportation industry - Inadequate road network coverage with 2% of
National Highways carrying 40% of the total traffic, poor road quality, highly fragmented industry,
multiple check points during journey, and low average trucking speed of ~30 40 kmph as against a
global average of 60 80 kmph.
Spanning 64,456 km with more than 7,133 railway stations, Indias rail network is the largest in Asia and
the second largest in the world. The Indian Railways operates 19,000 trains daily, transporting 2.65 MMT
of freight and 23 million passengers across the country. However Indias rail infrastructure suffers from
chronic under-investment, due to which its potential for freight movement remains largely untapped.
Problem Statement
Given the dynamic nature of the transportation industry and huge impact of external environment on
operations, any steel manufacturer faces the following challenges:


1. Logistics and warehousing accounts for about 7-8 % of a steel companys total Sales. With a
constant pressure to reduce cost, the question that the senior management faces frequently is
how should the logistics cost be reduced by 50% over next 5 years without compromising the
service levels offered to the customers?

2. With recent increase in domestic competition, there is a constant challenge to maintain product
differentiation or cost leadership. Given such uncertain times, how can services (Transportation
and Warehousing) be used to create a decisive competitive advantage?

3. Another major concern is the shortage of qualified drivers. There is an expected shortfall of 2
million trained ware-house workers and drivers in 2020 The escalating driver shortage has
become the leading check on over-the-road truck capacity, and if freight demand continues to
stay above current levels, the shortage is likely to lead to sharp increases in transportation cost,
as carriers pull out all stops to recruit and keep drivers. Similar shortage is appearing in other
countries as well (in Europe, USA). What are the various initiatives that can be taken by a) User
Industry b) Government c) Truck Manufacturers or any other relevant stakeholders to mitigate
the problem?

Contracting Strategy for Transportation Services

Transportation Industry in India
Logistics is a nascent and fragmented industry in India. This is despite the fact that last few years of high
growth in Indian Economy have resulted in a significant rise in volume of freight traffic.
Various estimates put the market size of the logistics sector in India to be between INR 6000-7500
billion. Given that the Indian economy has grown to over INR 90 trillion these estimates may already be
well below the actual size of the industry. Reports also estimate that the industry employs over 45
million people and is growing at the rate of 15% with sub-sector growing at even 30-40% per annum.
Roads continue to constitute the most significant component of Indias logistics industry, accounting for
60 per cent of total freight movement in the country. This is despite the fact that there are many
challenges facing the road transportation industry - Inadequate road network coverage with 2% of
National Highways carrying 40% of the total traffic, poor road quality, highly fragmented industry,
multiple check points during journey, and low average trucking speed of ~30 40 kmph as against a
global average of 60 80 kmph.
Spanning 64,456 km with more than 7,133 railway stations, Indias rail network is the largest in Asia and
the second largest in the world. The Indian Railways operates 19,000 trains daily, transporting 2.65 MMT


of freight and 23 million passengers across the country. However Indias rail infrastructure suffers from
chronic under-investment, due to which its potential for freight movement remains largely untapped.

Problem Statement
Outbound Logistics Division of Company ABC is responsible for ensuring despatch of goods to the
customer. It looks after both transportation as well as warehousing. The company follows a hub and
spoke distribution model for supply of products to its more than 2 lakh customers across the country. ~
65% of material is transported via rail and rest of the material moves by road.
Every morning based on despatch-able inventory in finishing steel mills, despatch planning is done. The
despatch of material is planned primarily by rail. The rest of the material is released by Road. However,
the aim remains to maximise rail despatches as in majority of the cases, it rail transportation is cheaper
than road.
30% of outgoing material goes to the customers directly. The rest of it goes to the stockyards from
where it is despatched to the customers on order placement. Despatch from stockyards, referred to as
second leg movement, is by Road only. 100% of road transportation is outsourced and is carried by our
vendor partners. The transportation vendors can deploy their own fleet of vehicles or can procure them
from the market. The decision to have own vehicles or procure from market depend on a number of
variables:
- Market vehicles are normally cheaper but availability for some destinations can be an issue.
- Market vehicles are not suitable for transportation of flat products. They are never used for high
end materials (products susceptible to in transit damage). However, they can be easily used for
Long Products (TMT Rebars).
- Own Vehicles are costly from the perspective of transporters as it affects their working capital.
- Own vehicles should be employed only when its high utilization can be ensured.
- High end material should be transported only by own vehicles
The procurement of transportation services is highly complex and is fraught with various challenges.
Contracting Challenges for Transportation from a Warehousing Hub
City X is one of the major hubs of the companys distribution network catering to the demand of entire
Western Region. City X receives material both by Rail as well as Road. Probability of material coming by
Rail is 90%. The material coming by Rail can be directly despatched to the customer (referred to as Ex
siding Material) or can be later despatched based on order placement. The ex-siding material should be
removed from the Railway siding within 24 hours of receipt of material otherwise Wharfage Charges
are paid to Indian Railways. Out of the total incoming material by Rail, ~40% of material is Ex siding
material and need to be despatched as soon as it is received.


Destination wise annual demand projection is given in Appendix 1. For the purpose of simplification,
total demand can be assumed to be equal to the total incoming material.
Facilitate the contracting strategy for transportation from the hub covering (but not limited to) the
following points:
Type of contracts-
- Short/ Medium/ Long Term or Spot Contracts?
- Open Book or Close Book Contracts?

What should be minimum number of vendors for the total transportation contract? Should this
number depend on:
- Type of products categories (as mentioned in Appendix 2),
- Variability of demand
- Destination/ Destination Clusters

Should some minimum volume be guaranteed to the transporters? Should this number depend on:
- Type of products categories (as mentioned in Appendix 2),
- Variability of demand
- Destination/ Destination Clusters

Fleet composition in terms of percentage of owned fleet.

Performance Measurement System to be used. What all Key Performance Indicators should be used
for measuring transporter performance? What should be the mechanism of bonus and penalty for
vendors?

What should be number of vendors to be contracted to ensure undisrupted services to our
customers. How should the capacity distribution be done among different vendors? What should
be the frequency as well as mechanism for change in the capacity distribution?

How should risk management and contingency planning and be done? What all external/ internal
risks should be kept in mind before contracting and what should be contingency plan? Some of the
risks that can be considered are:
- Demand variation beyond promised +/- 10%
- Addition of New destinations other than the contracted destinations
Please note that there should be no loss of sales due to lack of capacity. Capacity plan should not be
exactly as per forecast - it should be able to absorb variability in demand.
Any other relevant assumption can be made if required.


Appendix 1: Destination Wise Demand
Destination Transit Days Average Forecasted
Annual Demand (Tons)*
% of Long
Products
City 1 3 52 10%
City 2 4 53,922 100%
City 3 2 11,542 10%
City 4 3 24,732 10%
City 5 3 7,251 0%
City 6 3 17,704 50%
City 7 3 35,695 0%
City 8 6 153 100%
City 9 3 2,035 100%
City 10 1 1,72,536 94%
City 11 3 1,048 6%
City 12 4 3,874 100%
City 13 3 71,300 50%
City 14 3 10,085 2%
City 15 6 25 100%
Total Demand 4,11,955
*Please note that the
1. There is a month on month variation in demand. The demand for all destinations follows a
normal distribution with a variation of 20%.
2. For any given destination, last 10 days of a month account for 40% of total monthly sales.
Appendix 2: Product Categories
All steel products can be classified as either Flat or Long. While Flat Products are majorly used in
automobile and consumer durable segments, long products are primarily used in construction industry.
The average weight (tonnage) and average dimensions is as given:
Average Weight (Metric Tons) Average Dimensions
Flat Products- Coils 16 +/- 30% variation Diameter: 2100 mm
Length: 1000 mm
Long Products- TMT Re Bars
Bundles*
5 +/- 30% variation Diameter: 160 mm
Length: 12000 mm
*Please note that TMT is packed in Bundles with each bundle comprising of 10-12 TMT Rebars
Also note that ~50% of the flat products are susceptible to in transit damage and need special provision
of rubberised saddles while transporting.