Category Archives: Sourcing Steel

How to Select a Steel mill ( Micro level approach)

In continuation to the macro factors dealt in the previous post, let’s delve in to the micro factors to be considered in selecting a steel mill in this section.

The macro parameters can be common to other industries but they are quite indispensable while analyzing a steel plant.

Micro factors are those which determine how steel is being made and what is being made. Normally buyers emphasize more on micro factors.

Micro factors are as important as micro factors and should be analyzed in many aspects before selecting a source. These are the factors that would guide in answering “How to Select a Steel mill”? (Not in the order of importance).

1.       Production facilities : 

In Steel Industry, the quality of a mill mainly depends on the route of steel making and the facilities they employ. Since Steel is a high volume product, checking all the products for quality is improbable. So it is important to employ the right kind of Iron & Steel making route and right equipments to produce.

There are different ways of producing steel. These are mentioned in the order of preference / ranking from in terms of quality control.

  1. Blast Furnace – Basic Oxygen Furnace
  2. Corex –Energy Optimization Furnace
  3. Sponge Iron ( Any kind of Sponge Iron making) – Electric Arc Furnace
  4. Scrap – Electric Arc Furnace
  5. Scrap – Induction Furnace

Some of the common facilities to all the above can be,

Vacuum degassing – This can control the gas levels in steel.

  1. Ladle Refining furnace – Where required chemistry is achieved.
  2. Continuous casting / Ingot Casting
  3. Rolling
  4. Finishing Facilities

To summarize, the mill with blast furnace and BOF will have better quality steel. It also depends on the application. For example for re-bars, even Induction furnace would do. So it is important to consider the application while looking at the production facilities.

2.       Product Range:

 The mill with a vast range of products stands to benefit as this can be a means of diversifying that can serve the steel demand of various end user industries.

If a mill has quite limited range of products aimed at only one industry, for example if a mill has only re-bars, then there is a risk if the construction industry performs bad.

Ideally for a flat product mill it is better to have – Hot rolling mill, Cold Rolling mill, Metal coating mill, Plate mill.

For a long product mill which is concentrating on commodities, it is better to have re-bars, angles, channels and beams.

For an Alloy Steel long product mill – Bars – (Round, Square, Hexagon), Wire rods.

Ideally many big steel plants have the combination of all, to ensure that they are present in all major products.

3.       Quality Control:

As mentioned earlier, it is impractical to produce 100% good steel and it’s impossible to inspect 100% steel produced. This does not mean that Quality control is difficult.

By opting for higher levels of automations and by complying with efficient quality systems like Six Sigma, TPM, Quality control can be achieved at a steel plant.

Controlling the parameters at different stages of the production and ensuring that the production department follows this is one of the main roles.

Defining the rules of sample inspection and method of production also takes care of the quality.

The overall view should be that quality is not a role of quality control department and that it is a collective role of all the departments. This attitude will ensure reduction of defective steel products.

It is important that the steel buyer audits the relevant records at different levels of production to ensure the effectiveness of the system being followed.

The percentage of internal rejections & the number of customer complaints is a yardstick of how effective is the quality control.

4.       Accreditation / Certification :

When a steel mill gets accredited to various renowned quality standards viz., ISO, and other private quality standards, it can be an indication that a system is in place.

Today ISO certification has become a mandatory and basic requirement of every steel plant.

Some steel plants servicing to automobile customers have also accredited with ISO/TS-16949, which calls for stringent system.

5.       Research & Development :

 The amount of investment a steel plant makes in research and development, new product development will encourage and bolster customer’s confidence in them.

Keeping abreast of technological improvements is a must.

Today many steel plants engage in early development of products with their customers’ right from the design stage. This has ensured that steel cannot be sold just as a commodity. This can be possible only with a strong R&D highly qualified team and modern testing facilities.

Steel plants should position themselves as steel solution providers rather than steel makers and sellers.

 6.       Distribution model / Geographical spread :

“Go to Customer” is the mantra for any product and in today’s scenario; Steel Industry seems to have aligned itself to this.

For any customer, they should feel that the steel plant is close to them. This is possible by means of service centers, stocking points.

For a Steel buyer to depend on the steel mill, it is important to ensure that the steel mill is flexible enough in deliveries and quantities.

There are service centers, stockiest, steel retail centers opened by many steel mills that take care of small and timely requirements of customers.

A buyer has to look if the steel mill has a robust distribution system with presence in major industrial/ end user hubs.

7.       Sales Organization Structure:

For a Steel buyer, accessing the sales personnel irrespective of any level is the most important aspect.

The steeper and multi-level the sales organization structure, the difficulty level increases for a customer.

A buyer has to check as how customer friendly the sales team is and how their orders are taken care of.  The key account manager plays a major role.

Also if there are Zonal managers, then the influence of Zonal manager over the top management plays an important role.

In many steel plants, the facilities and product may be good, but due to poor people management and attitude towards customer, their market share will dwindle.

A mutual understanding, developing a mutual trust and co-operation for the benefit of both the parties should be aimed at.

The sales organization structure should define the roles of each level with clarity and without any overlap.

8.       Existing customer base  / References :

One of the easiest ways of judging a steel mill is based on their existing clientele. While this can be a good and simple way, but this does not indicate that all customers can be served by the mill. The needs of every customer are different and only few steel plants can serve to diversified clients.

These are some of the important parameters that can be of relevance to all steel buyers,

If you are looking for a metric or a ranking method based on micro and macro parameters and base your decision making on this scientific method, please feel free to contact me at madhu@knowyoursteel.com

Happy Steeling!!

How to Select a Steel Mill ? (A Macro Level Approach)

Steel Industry has evolved over past couple of decades thanks to the onset of industrial expansion and globalization, the number of steel producing companies have grown many fold.  Many buyers of the previous decade would never forget those dreadful days when steel mills dictated the terms as buyers did not have many options, but to live with them.

The role of a purchasing manager in any organization is vital, as they have the onus of ensuring availability of right kind of raw material at the right time and right price for smooth production.  Steel, being a technical product, leaves the job of a steel buyer even more strenuous.

 Today’s steel buyers face a different challenge. With the availability of many sources globally, one has to be smart enough to select few mills on based on various factors and arrive at their decision on a scientific manner.  This is crucial, as developing a steel source is a time, energy, resource consuming process and steel buyers have to invest in selecting and developing a source. So when the selection is done, they ensure that the steel mills support them for a long term. Any organization which is long-term oriented would follow the process of auditing the steel mills before selecting them as a supplier partner.
Following will help to answer ” How to Select a steel Mill”?

There are various factors that one should consider while selecting the steel mills. This can be broadly classified in to

  1. Macro factors
  2. Micro factors

In this blog, only macro factors are considered.

I.Macro Factors:

Macro factors can be common for many industries and some of them are specific to steel industry. Following are some of the key macro factors to be considered. ( These are mentioned not in the order of importance)

1. Backward Integration :

It is important that the steel plant is completely backward integrated so as to have effective quality control on most of the raw materials and reduce the dependence and supply/ availability vagaries of some of the key raw materials. Ideally the steel plant should have

  1. Pellet plant / Sinter plant
  2. Coke ovens
  3. Raw material handling systems.
  4. Iron making facility- Blast furnace / sponge Iron.

2. Captive Mines :

Some of the mills that have the lowest cost of production are those with captive mines viz., Iron ore and Coal. Today, this is the most important factor for any steel company in the world. Securing the raw materials over a long-term is what all integrated steel plants are looking at. All major steel companies are scouting for iron ore or coal mines globally and no surprise, we are seeing many Indian, Chinese companies taking over coal / iron ore mines in Australia and Africa.

The ideal situation for any steel plant would be to have own iron ore and coal mine. But this is not the reality. Very few companies have been prudent and fortunate enough to have them.

For the rest, tying up for the metallics on a long-term with the mining companies is the primary task.

3.  Proximity to raw materials & Port :

For any steel mill, the proximity to the raw materials is a key factor. Since raw materials are required in large quantum, steel mills far off from the raw material source would end of paying more freight charges and eventually become less competitive.

Proximity to the port is another major factor. There are many steel plants that have built their own ports. This serves in both ways.  Receiving raw materials and shipping / exporting finished goods.

Steel mills require huge amount of water for many of the operations and hence continuous availability of water is a must. Ideally steel mills are located close to fresh water bodies like, rivers, lakes.

4. Electricity :

Iron & Steel making consumes huge amount of electricity and many steel plants have commissioned captive power plants and grids to ensure their electricity cost is cheaper and continuous availability.

Blast furnace & Sponge Iron plant waste coming out at high temperature are normally utilized to produce power. Some of the steel plants have become so power sufficient that they sell the additional power to the local electricity board to generate additional income.

In developing nations, having a captive power plant significantly reduces the cost of power for producing steel.

5. Political Situation :

 A stable political environment is a pre-requisite for any industry to survive. It is important that while selecting a steel mill, to know about the political situation of the state/county/country.

6. Pollution Control & Sustainability :

In a world of carbon credits, where the entire globe is trying to save the planet from global warming and reduce the green house gases and carbon-di-oxide emissions, it is important for a steel company to act in an environmentally responsible manner.

These days there are some indices available that rank companies on their environmental approach and sustainability.

Steel being the most recyclable material in world and can be reused 100%, steel mills should try to use as much as internal wastage as raw material, which not only save their input costs, but also helps the environment.

Many innovations have taken place in steel companies in Europe that enables steel mills to use less energy to produce steel.

But there are also many steel mills in the eastern part of the world and some in CIS that are quite old and these mills are more prone to pollute the environment. The age of the facilities of the steel plant can imply the company’s will to keep pace with modernization & technological capabilities and the pollution level based on the age of the facilities.

Sustainability & environmental friendly are important yardsticks for every steel buyer to check how environmental friendly their steel supplier is.

7. Stable Management , Vision & Mission :

For any company, a stable management is so crucial. If the company has changed many hands and frequently, then partnering with them for a long-term without proper understanding about the management’s future plans would be futile.

The vision & mission statement, speaks a lot about an organization, its ideologies, values, ethics etc. This throws light on where the company wants to be and how it intends to achieve it and whether this has percolated to all the employees.

It is also important for a buyer to understand as how the top management of the steel mill looks at a customer. Whether they are looking at long-term partners & customer friendly or whether they are opportunists.

8. Financial Status / Credit Rating :

Maintaining a financial discipline and ensuring a profitability business is the basis of any business.

Steel being a highly captive intensive product to produce, any steel company has to have deep pockets to wither the bad phase of the market and to ensure how to create value for all stake holders.

Steel Industry has witness many hostile acquisitions and sell-outs, mergers and acquisitions. All of them all majorly attributed to the poor financial status of the companies.

For a steel buyer, it is essential to know the debt level of the steel company and their credit worthiness.

There are various credit rating agencies that rate companies on their financial discipline from which a steel company’s creditworthiness can be gauged.

9. Safety Standards :

 From the number of accidents that occur in a steel plant, one can make out how much emphasis was given to the safety of its employees.

If the company is accredited with OHSAS 18001, then it can be a good indicator that they take all safety precautions.

If there are frequent accidents, it shows that the company does not care about their employees, which indicates that they won’t care for their customers too.

 

If you are looking for a metric or a ranking method based on micro and macro parameters and base your decision making on this scientific method, please feel free to contact me at buzzmadhu@gmail.com.

Happy Steeling!!

Art of sourcing steel

Manufacturing industry has seen manifold growth over the past decades; It might lack a bit of glamour and exuberance attached with the IT & service industries. Nevertheless, it is the backbone of any economy.

Steel Industry –  One of the major drivers of an economy along with other major manufacturing industries viz., cement, power, electricity, mining. Steel due to its versatility and vast usage, is a quintessential product  and forms one of the important raw material for many manufacturing companies. This makes sourcing of steel a critical and crucial role in an organisation.

Due to its  vast usage in many different applications, and innumerable grades and the kind of volatility steel market has been witnessing in the last few years, Steel sourcing can really give hard times for the purchaser, to surf for the list of producers and then zero in on the right supplier(s).  Most of the times, they get entangled by the technical stuff.

As a Steel marketer since the inception of my career, I have always been keenly watching, learning from my peers, competitors, colleagues, as how they handle different steel buyers, their approach to different situations, their persuasive skills, their timing to decide as when to lie low and hold their horses and when to stick on to their guns.

As equally, I have also watched many of the steel industry admired “purchasing managers”, as at times, I switch chairs across the table to be a steel buyer as well.

Steel Industry has matured and evolved in time. The very word “Allocation” from the steel mills is dreadful . In the past, many steel buyers would have to plead the steel mills to increase their allocation, lest their production would halt!

Thanks to the expansion and globalization of steel Industry, today the situation is other way round and we all are witnessing a “glut”, making the job of the buyer easier than in the past.

Given this stance, a steel buyer cannot be complacent as today, there would be many suppliers knocking the doors of buyers wanting to partner with them to service their steel needs.

When “Selling Steel” is an art, “Buying Steel” is definitely an art too, given the complexity in buying steel. It’s just not merely jotting the prices of series of suppliers in an XL sheet and selecting the lowest supplier by price, which even a school kid would do!

This prompted me to write about “Art of Sourcing Steel”.

Some of the vital roles of a steel buyer are,

  1. Finding the producers of the type of steel required
  2. Understanding/comparing the capabilities, strengths and weaknesses
  3. Analyzing the financial stability of the company and their long-term goals
  4. Selecting the right supplier(s) from the lot.
  5. Developing and maintaining mutually successful business relationship
  6. Rating and reviewing the performance of supplier from time to time
  7. Having a close-eye on new potential suppliers.

In any long-term oriented organization, some of these processes would be followed.

Of all this, I personally believe “Relationship” drives business more than anything else.  This can hold good for any product. Irrespective of price competitiveness and quality if product, if there is no mutual trust and mutual respect between the organisations and between people involved in business, any business relationship cannot last long.

Relationships at times many not yield benefits on a short-term, but it is one of the effective tools for a long-term benefit for a steel business. This would reduce development costs both sides ( cost of developing a source for buyer and a customer for seller).

For example, A steel supplier’s  behavior can be gauged as how they behave when there is excess demand/ short supply. Similarly, a steel buyer can be judged as how they align themselves when there is abundance in steel market coupled with modest demand.

If a steel buyer or seller does not tend to behave differently by not trying to make quick buck in these circumstances and stick on to their commitment, then we have a successful long term beneficial relationship.

Unfortunately, due to market compulsions, there are companies, that are opportunistic at times, and use the services of suppliers by sucking the supplier till their last blood, especially, when the supplier is in dire need of business. But this is so true vice-versa as well.  This can yield short term immediate benefit. But, this will  definitely not yield long-lasting results.

Associating with a new supplier for every new requirement, would not only increase the cost of sourcing ( as this has the element of risk involved), it also deprives the organisation of the opportunity to build-on a relationship with an existing source by imposing trust on them.

Today, suppliers are a company’s partners and are considered as equal to any other stake holders. It is those companies who quickly realize this, will stand to reap the benefits on a long-term.