EXPLORING THE POTENTIAL OF INFORMATION & INTERNET TECHNOLOGY BY TATASTEEL

by Case Studies on 2010-09-28 00:51:06

A CASE STUDY ON EXPLORING THE POTENTIAL OF INFORMATION & INTERNET TECHNOLOGY BY TATASTEEL

Established in 1907, Tata Steel is the first integrated steel plant in Asia. TISCO is the lowest cost producer in the world. The company is India's single largest exporter of high quality, value added steel products. Tata Steel (BSE: 500470), formerly known as TISCO and Tata Iron and Steel Company Limited, is the world's sixth largest steel company, with an annual crude steel capacity of 31 million tones. It is the largest private sector steel company in India in terms of domestic production. Ranked 410th on Fortune Global 500, it is based in Jamshedpur, India. Tata Steel is also India's secondlargest and second most profitable company in private sector with consolidated revenues of 102, 393 Crores (Usd.22.21 Billion).

This case study looks into evolution of different types of e-Procurement solutions at Tata Steel. This study proves that firms need to manage a portfolio of solution on E-Procurement solutions to realize the full potential of the Internet technology. The process before E-Procurement was rather lengthy with less productivity. Each process involved unnecessary paperwork with a lengthy cycle time for purchase request to purchase order release, above two months. Lack of transparency and payment delays were regular. High inventory and procurement costs were the result of inefficiency.

This made a realization to the management to deploy technological advancements in the total logistics and procurement processes. As a part of this during 1991-92 Tata Steel installed an IBM 2370 mainframe. In late 90s, a procurement solution was developed over DB/2 database. However only a few key suppliers were provided the facility to see their orders and goods receipt notes (GRN).

But the then system was not very well equipped to support any transaction. This system wasn’t developed any further since a move to ERP solution was expected soon. In 1999 Tata Steel and SAIL (Steel Authority of India Ltd) joined hands for forming an industry portal metaljunction.com. This was a consortium sponsored e-market hence the integration with Tata Steel’s internal system was relatively low. Shortly, a move to internal E-Procurement solution was initiated soon after SAP was implemented at Tata Steel in December 2001. IBM mainframes were replaced by client server architecture and SAP was the ERP solution implemented on ORACLE database. The strategy deployed was to check on two possible options, first was to wait for SAP to stabilize and then develop an e?procurement solution and the second was to start developing eprocurement solution immediately.

They chose for the second option since the opportunity cost for the first was comparatively high. Because of architectural similarities expertise generated while developing procurement system for mainframe, came really handy and Tata Steel could develop an E-Procurement solution by April 2002. The pilot implementation involved suppliers from rapid order segment (a low value high transaction segment). Most of the suppliers in this segment are local supplier and in vicinity to Tata Steel Mills in Jamshedpur. Most of them don’t have technical Knowhow. The pilot project also enabled SAP and e-Procurement solution to evolve simultaneously.

By July 2002 both SAP and e-Procurement solutions were stabilized and all suppliers in rapid order segment were migrated to e-Procurement solution. E Procurement Adoption was a tedious task. In traditional electronic data interchange (EDI) systems a
large proportion of suppliers, usually small to medium size enterprise (SMEs), remain outside the EDI. They have initiated various subsidy strategies like e?readiness audit, identifying subsidy needs and providing financial and non financial subsidies to promote the usage of E-environment.

MetalJunction.com conducted training and awareness sessions for suppliers and hence generating a demand for an industry consortium sponsored e-market. To overcome security fear, Tata Steel got BS7799 (a security standard) certificate for its Information system including e-Procurement solution.

TISCO also installed e-Procurement clinics with the help of some tech savvy suppliers. These suppliers were early adopters who helped other supplier in their vicinity to overcome initial technical problems. The adoption rate gradually started increasing. By November 2002 most of the suppliers were made E-Partners i.e. they were registered with Tata Steel and had access to the Internet. However, less than half of the suppliers were using the solution. In order to achieve maximum utilization they made E Procurement mandatory for its suppliers in November 2002. Today, over 90% of Tata Steel’s total supplier base uses the e-Procurement solution. There are some big vendors that continue to use old paper based systems.

Getting these people to use the e-Procurement solution is still a challenge, and Tata Steel needs to develop a strategy to have them participate. Now we will brief on the E Procurement Portfolio. Over a period of time, Tata Steel has adopted four e-Procurement solutions. They can be broadly classified as consortium sponsored and internal EProcurement solutions. Metaljunction.com is a consortium sponsored solution where as the next three are internal e-Procurement solutions.

First one is Metaljunction.com, an e-market promoted by a consortium of SAIL and Tata Steel, the second is an internal e?Bidding solution, the third is an e-Negotiation solution and the final one is VMI register Metaljunction.com charges different fees for different services offered. Fees range from a low of 0.1% to a high of 7.5% of goods sold/procured. Together Tata Steel and SAIL produce over 60% of India’s total steel production. Therefore Market making services offered by metaljunction.com enables Tata Steel to reach to a broader supplier base. Today, Metaljuctioon.com provides e-Procurement, e?Selling and channel finance services to Tata Steel has saved almost 8% per cent of total procurement cost. Internal Solutions takes care of the inter organisational needs. All crossorganizational elements of the inbound supply chain are covered and transacted through this site.

This includes enquiry/RFQ details, Online and offline quotation logging, Order placement, Delivery compliance monitoring, Order amendments and Material receipt and payment tracking This site offers three kinds of e?Procurement solutions namely e-Bidding; e?Negotiation and VMI register. E Bidding & E Negotiation: All cross organizational elements of the inbound supply chain are covered and transacted through this site. This includes Enquiry/RFQ details, Online and offline quotation logging, Order placement, Delivery compliance monitoring, Order amendments and Material receipt and payment tracking.

Metaljunction.com is preferred when the volume is quite high and the buyer feels a need for scanning the entire market. Metaljunction.com is now the largest e-marketplace for steel in the world, having sold over 4 million tonnes of steel for its clients and currently selling at an average rate of 150,000 tonnes per month. The buyer community of 5400 plus buyers comprising traders, fabricators, re-rollers and end?users have placed their confidence on metaljunction because of the operational efficiency, transparency and equal access that the platform provides. metaljunction's clients have experienced significant benefits on migrating to online selling. Immediately on migration, from their traditional sale process, to the metaljunction online process, their price realizations increased by up to 23%.

To conclude technology enabled Metaljunction.com is not integrated with Tata Steel’s internal system but the number of suppliers participating became significantly higher by the time goes by. Tata Steel’s internal solutions are low in number of participants but high on integration with internal system.

Tata Steel has come a long way since its inception, when it started with steel production of 1, 00,000 tonnes a year. In the last 100 years, Tata Steel has changed its identity from a dominant domestic player to a regional player to an upcoming global company; ranking sixth in the world in steel production, There have been many more milestones along the way. Tata Steel has been an EVApositive company since 2003. It was declared the ‘lowest cost producer of steel in the world’ in 2001 and the ‘world’s best steel plant’ in 2005 by World Steel Dynamics. Today, Tata Steel is aspiring to be the second largest steel company in the world by 2012 and expect to reach 100?million tonne production per annum.


Courtesy on information: www.tatasteel.com, www.wikipedia.com, www.metaljunction.com, periodicals, Articles & respected faculties of XLRI Jamshedpur.


Harish Kumar
General Manager – Middle East & Africa
Seagull Global Logistics, Dubai, UAE..