A Project Report

on

SUPPLY CHAIN MANAGEMENT

Submitted for partial fulfillment of the requirements for the award of the degree
of

BACHELOR

of

_________________ BUSINESS MANAGEMENT___________________

BY

SAHIL SANDIL

USCBB20109

School of Commerce
XIM University
Bhubaneswar
SUPPLY CHAIN MANAGEMENT OF NALCO

TABLE OF CONTENT

Introduction

Company Profile

Industry overview

Market Segmentation & Marketing of Nalco

Distribution Channel

Findings

Suggestions / Recommendations
 Introduction
National Aluminum Company Limited (Nalco) is
considered to be a turning point in the history of the
Aluminum Industry. In a major leap forward, NALCO
has not only addressed to the need for self-sufficiency
in aluminum, but also given the country the
technological edge in producing this strategic metal to
Corporate the best of world standards. Smelter

Established in 1981, NALCO has emerged as the

largest manufacturer-exporter of alumina and
aluminum in the country. Nalco's entry into the world
of exports began in January 1988. Since then, there has
been no looking back.

Port Facilities NALCO is the first Indian Company to be registered

Captive Power Plant
with the London Metal Exchange. The Company has
also received ISO-9001, ISO-14001& ISO-18001
certification for all its units; Mines, Alumina Refinery,
Aluminum Smelter and Power Plant. NALCO has
emerged as the largest integrated Bauxite-Alumina-
Rolled Product Unit
Aluminum Complex in Asia.
Port Facilities

NALCO products are sold in more than 30 countries

worldwide - including the UK, the USA, France,
Norway, Italy, Switzerland, Belgium, Brazil, Russia,
Australia, China and Japan.

World Map Achievement

 Our Company

The Background
Following the discovery of large reserves of Bauxite ore in the east coast and the
preliminary project work done by Bharat Aluminum Company Limited, our Company
was set up by the Government of India in 1981 to implement one of the largest multi-
locational integrated Aluminum projects of the world with its own Captive Power Plant
and Port Facilities.
The technical collaboration of Aluminum Pechiney of France, the support of Euro-
dollar loan from a consortium of International Banks and the special dispensations of
the Government of India and the Govt. of Orissa helped our Company to implement the
project expeditiously within the budgeted cost of Rs.2408 crore, under very difficult
logistics of project management.
Different segments of our Company went into production in a phased manner starting
from November 1985. Within a short span of time, the Company has emerged as a
leader in the field of Aluminum production in the country and also has made significant
impact abroad. The Company has helped the country to make a quantum jump in
production of Aluminum and has also been earning substantial foreign exchange
through creditable export performances year after year.

The integrated complex has five main segments:

Segment Capacity Location

Bauxite Mine 68.25lakhs TPA Panchpatmali in Koraput
Alumina Refinery 10 lakhs TPA Damanjodi in Koraput
Aluminum Smelter 4.60 lakhs TPA Angul
Captive Power Plant 1200 MW Angul
Port Facilities 912,000 tpy Visakhapatnam (AP)
(Alumina Export)
 Plant Locations

While the Corporate headquarters of our Company is located at Bhubaneswar, the

capital city of Orissa, its mining operation and the manufacturing units are located at
Damanjodi and Angul.
Damanjodi
Damanjodi, where Nalco has established its Alumina Refinery and a township, is one of
the picturesque valleys of this beautiful district, on the foothills of Panchapatamali hills.
The plateau of Panchapatmali, where the Bauxite mine of Nalco is located is connected
by a 16 km. long uphill road. Damanjodi is 12 km. from Simliguda, a small town
located on the National Highway No.43 that connects Vajayanagaram of Andhra
Pradesh with Raipur of Madhya Pradesh.
Nalco Nagar, Angul
Nalco Nagar is situated within 5 km. of Angul town. Angul was once a feudal state with
a chequered history of palace intrigues and wars with neighboring states. In 1847 the
state was confiscated on account of the rebellion against the British by the then ruling
Chief Somanath Singh. Thus, Angul passed under the British rule earlier to many other
parts of Orissa. Angul became a district headquarter in 1994.
Angul today is a fairly big and bustling town on the National Highway No.42 which is
the main Highway connection Bhubaneswar with Raipur (MP), Sambalpur, Sundargarh
& Rourkela. Nalco has established its Smelter Plant, the Captive Power Plant and its
township close to the National Highway. The place is easily accessible from Cuttack
and Bhubaneswar by road and rail.
Local population, till the advent of industries, basically depended on agriculture for
livelihood. Today in the vicinity of Angul a large number of industries have come up.
The other important industries in and around this place are Talcher Coal Mines of
Mahanadi Coalfields Limited and two Thermal Power Plants of NTPC. Establishment
of Nalco and other industries have brought about accelerated growth to the trade,
commerce and ancillary industries in the district.
It is important to note that due to the establishment of our Company, its plants and
townships, many local families were displaced or lost parts of their lands in Damanjodi
and Angul sectors. The Company has paid adequate compensation to the affected
families at the time of acquiring the land and further as a matter of social obligation, has
been providing employment and business opportunities to the members of the displaced
families on preferential basis.
The Company has also been implementing various periphery development programmes
at considerable cost to improve the quality of life of the people living in the surrounding
villages.

Vision

To be a reputed global company in the metals and energy sectors.

Mission

 To achieve sustainable growth in business through diversification, innovation

and global competitive edge.
 To continuously develop human resources, create safe working conditions,
improve productivity and quality, and reduce cost and waste.
 To satisfy the customers and shareholders, employees, and all other
stakeholders.
 To be a good corporate citizen, protecting and enhancing the environment as
well as discharging social responsibility in order to ensure sustainable growth.
 To intensify R&D for Technology development.

Objectives & Goals

 To achieve annual turnover of over Rs.25, 000 Crores by 2020.

 To achieve annual production of 1.7 million ton Aluminum and 4 million ton
Alumina by 2020.
 Transform from being only an “aluminum producer” to become a metal
producer and energy provider.
 To venture into new fields of activity beyond Aluminum by setting up at least 2
nos. diversified projects by 2016.
 To target at least one 1000 MW IPP by 2016.
 To maximize value and long term return to share holders through a strategy of
new investments, cost competitive mines and business driven by the quality of
products and services.
 To develop long-term relations with domestic and foreign clients and Joint
Venture partners.
 To develop a powerful scientific and technical base. Apart from investments in
volume growth, the company shall substantially finance R&D and
modernization of facilities, laboratories, achieving improvements in the quality
of products and satisfying customer demands.
 To adopt main strategic priorities aimed at end user orientation.
INDUSTRY OVERVIEW

Profile of Aluminum Industry in India:

The aluminum industries are highly concentrated, with just three players accounting for
the entire production capacity of 14.40 lac tones per annum. The production figure as of
now and the projected production figure by 2015 for these producers are given below.

Company Production (lac tones) Projected by 2015

VEDANTA 5.00 20

HINDALCO 4.80 15

NALCO 4.60 10

TOTAL 14.40 45

The per capita consumption of aluminum in India is only 1.1kg.as against 25kg in USA,
19kg in Japan and 10kg in Europe. Even the world’s average per capita consumption is
about 10 times that of India. One reason of low consumption in the country could be
that consumption pattern of aluminum in India is vastly different from that of developed
countries.
The demand of aluminum is expected to grow about 9% per annum from the present
consumption levels. This sector is going through a consolidation phase and existing
producers are in process of enhancing their production capacity so that demand supply
gap expected in future is bridged. However, India is a net exporter of alumina and
aluminum at present.

Salient Features of Aluminum Industry:

 Highly concentrated industry in the country.

  Controlled by two private groups and one public sector unit.
 Bayer- Hall-Heroult Technology used by all producers.
 Electricity, Coal and Furnace oil are primary energy inputs.
 All plants have their own captive power units for cheaper and uninterrupted
power supply.
 Energy cost is approximately 40% of manufacturing cost for metal.

Quantitative Details:
Raw Material & Product Type
Bauxite and calcined petroleum coke are primary raw material for this industry.
However alumina is a raw material for smelters and aluminum metal is raw material for
fabrication units.
Fuel Usage:
Coal, Furnace oil and electricity are primary energy inputs in aluminum production.
Coal is primarily used to generate electricity, while fuel oil is mainly used in calcination
of alumina and various furnaces in fabrication plants. Electricity is the major energy
input in aluminum production and is considered being prime factor in determining
economics of aluminum production. Hence all primary metal producers have installed
their own captive power plants to supply cheaper and uninterrupted power for their use.
Majority of electricity consumed in this industry is supplied from their own captive
power plants.
Technology Status:
The production of alumina obtained from bauxite, a mineral containing up to 60% in the
form of mono/cryohydrate is carried out through the buyer route, which is an extractive
hydro-metallurgical process.
Invented over 100 years ago, Hall-Heroult is the only available commercial technology,
even today for the production of aluminum metal through electrolytic process.
MARKET SEGMENTATION OF NALCO:

Even today the aluminum market is supply driven. All the products of Nalco are in the
nature of intermediate products. So the main customers are the industrial users, who
make the finished goods from these intermediary products. To know the demand of
various products and the buying behavior of the customers, the market can be
segmented in the following ways:

 BASED ON THE PRODUCT GROUP

On the basis of product group, Nalco’s market may be segmented by the following
products:
- Ingots
- Wire Rods
- Billets
- Strips
- Rolled products

 BASED ON THE DEMAND PATTERN

Based on size & frequency of order, the market maybe segmented as follows,
-Bulk customer
Bulk customers are those customers whose demand is very high and consistent.
-SMALL & MEDIUM;
Small and medium customers may be bracketed as those customers whose demand is
comparatively low and not so consistent.

 MARKET SEGMENTATION BASED ON GEOGRAPHY:

-Domestic
-Export
Domestic Marketing:

The domestic sales of aluminum are facilitated by the regional marketing offices located
in Calcutta, Delhi, Mumbai, Chennai and Bangalore through regular customer contacts
and demand assessments. The company is presently operating seven stockyards in
different parts of the country. These locations are Jaipur, Kolkata, Vizag, Bangalore,
Bhiwandi, Silivassa, and Faridabad. There is proposal to open stockyard at Baddi
(Himachal Pradesh) and other places. Domestic sale of Metal is done on ex-factory
basis as well as through stockyards against advance payments or LC.
As a policy, no credit sales are being done presently. Sales are being made through LCs
and advance payments. Export sales are done only through LCs in any first class bank
having transaction with SBI.
Customers taking deliveries from the factory often face bottleneck due to local truck
owners associations. This has been a cause of concern for the Company. The stockyard
sales have helped better customer satisfaction.

Export Marketing:

Export Marketing is a centralized function carried out from the corporate office. The
Marketing Dept. maintains a record of potential overseas customers through process of
registration/pre-qualification for tendering sales from time to time.
The Company always targets to realize maximum premium over the average LME
prices depending on the market condition. Thus there have been price realizations above
LME prices.
Alumina and Aluminum produced by Nalco are sold in as many as 30 countries,
including USA, Japan, China, UK, Norway, France, Brazil, Korea, Indonesia,
Singapore, Hong Kong, Bahrain, Iran, and UAE.
The export sale of metal is mostly concluded on CIF Singapore freight parity.
Shipments to various other ports, if involved, are charged extra.
The export shipment of metal is done from the ports of Vizag, Calcutta and Paradip as
containerized cargos. The marketing department coordinates the transportation with the
help from clearing and forwarding agents and the shipping liners.
Alumina export sale is done through both term contracts and spot sales to the highest
bidders and against letter of credits. Shipment is done as bulk cargos from the Vizag
Port where the Company has got required berth and handling facilities

DISTRIBUTION CHANNEL:

Conceptual Framework

Distribution Channels are sets of interdependent organizations involved in the process

of making a product available, or reached the target market or consumers. Smooth
availability of the products to the right customer, at the right place, at a right time with
safe & secured quality and quantity is an important task for the customer’s satisfaction
is goals of all the organizations. Organizations are spending a huge amount of about 25
to 35% of the cost of products to achieve this.
Thus a distribution channel for a product may be defined as a route taken by the title to
the goods as they move to ultimate customers or industrial users and the primary
objective is to bridge the gap by resolving spatial (geographical distance) and temporal
(relating to time) discrepancies as to supply and demand. The functions of the
distribution channels are:
 Making smooth availability of product to the target market.
 Achievement of the best possible coverage of the target market.
 Ensuring that the consumer incurs the minimum extenuation in procuring the
product.
 Ensuring that the distribution is cost effective.
 Safe in quality and accuracy in quantity.
 Quick services.
  Ensuring that the firm is able to carry on with its manufacturing activities being
confident that the channel will take care of the distribution job.

Role of Marketing Channels:

Successful value creation needs successful value delivery. Holistic marketers are
increasingly taking a value network view of their businesses. The marketing channel
performs the work of moving goods from producers to consumers. Intermediaries
normally achieve superior efficiency in making goods widely available and accessible
to target markets. Through their contacts, experience, specialization, and scale of
operation, intermediaries usually offer the firm more than it can achieve on its own.
These are the various roles performed by the channel partners:
 Gather information about potential and current customers, competitors, and
other actors and forces in the marketing environment.
 Develop and disseminate persuasive communications to stimulate purchasing.
 Reach agreements on price and other terms so that transfer of ownership or
possession can be affected.
 Place orders with manufacturers.
 Acquire the funds to finance inventories at different levels in the marketing
channel.
 Assume risks connected with carrying out channel work.
 Provide for the successive storage and movement of physical products.
 Provide for buyers' payment of their bills through banks and other financial
institutions.
 Oversee actual transfer of ownership from one organization or person to another.
All channel functions have three things in common: They use up scarce
resources; they can often be performed better through specialization; and they
can be shifted among channel members. When the manufacturer shifts some
functions to intermediaries, the producer's costs and prices are lower, but the
intermediary must add a charge to cover its work. If the intermediaries are more
efficient than the manufacturer, prices to consumers should be lower. If
 consumers perform some functions themselves, they should enjoy even lower
prices.

Distribution Process:

There are different task involved in distribution process as follows;

 Order Processing
 Packing & Insurance, Banking, Bills
 Warehousing
 Transportation
 Stockyard Sales Procedure

Order Processing:

Every purchaser has to book his order by giving details such as ingot, sow, wire rod,
billet and cold rolled coil etc. Purchaser should fully disclose such as product name,
quality, quantity, technical data, mode of transportation, desired delivery time, payment
mode etc. Technical wing of Nalco examines their applications and decides quality to
be offered. This order is then passed to the relevant personnel‘s officials with relevant
details. A priority list of all categories consumers has to be fixed in consultation with
the concerned. Consumer gets delivery in order to their priority, which is also followed
by transporting agents.
Generally, Nalco procure order directly from the customer. The order contains the name
of product, quality, size etc. After the receipt of order from the customers or agents, the
company scrutinizes the order. A production-planning program is prepared by
marketing department in consultation with the production department. This monthly
report is sent to the respective production department. The materials so produced are
sent to dispatch yard after the inspection.

Warehousing:
Product wise materials on the basis of grade are shifted to the allotted areas from cast
houses. The same are stored in lines with easy access for inspection, listing and loading.
All the ingot stacks, wire rod coils, cut billets and cast strip coils are tightly bound with
steel straps and seals at different points to avoid damage to the material during loading,
transportation and unloading. A daily stock statement is prepared showing the details of
quantity received, dispatched and closing balance of each grade product and the
statutory records is maintained on the basis of this statement under excise rules.

Packaging:
Packaging is very important for strips and rolled products because of hygroscopic
nature of aluminum. Special care is taken to make these products air-tight. Outdoor
storage is completely avoided. After loading into the truck, it is covered with tarpaulin.

Mode of Loading
Mode of loading is the part of distribution system. There are two types of loading;
Manual loading and automated loading
Nowadays everywhere the automated loading system is used because it is time saving
and also very economical than manual loading. In Nalco, there is good system of
loading i.e., automated loading system. Sometimes manual loading is done to make the
stack of ingots.

Transportation
In distribution system without proper mode of transportation, the product can not be
reached in the market in time resulting loss in the image of the company. In Nalco the
products are transported both by road and by rail. The rail mode is used to bring
calcined alumina from Damanjodi and for the export marketing.

Delivery of Material
As per dispatch instruction received from corporate marketing department on the basis
of availability of particular quality product, dispatch program is drawn and truck
placement intimation is given to the transporter for placement of trucks on the day to
day basis. The program is prepared giving preference to dispatch instruction seniority,
MOU preference etc.
In case of dispatches for different ports for export purposes as well as for domestic sales
through zonal marketing departments, the material is also dispatched by rail. Indents for
placement of rail wagons are placed with traffic department and railways. All the
finished goods are kept ready in rows in the loading bays with the help of fork-lifts. The
material particulars are listed in a loading slip wagon-wise. Required no of strapping on
the cast ingot stacks, wire rod coils and cut billets are ensured before loading into
wagons.

Insurance
Every material is dispatched duly insured. There are two types of insurance.
1-CARRIER RISK
2-OWNER RISK: Nalco arranges insurance facility for the customers. If there are any
damages in transportation, they will issue damage certificate and the customer can
claim its insurance on the basis of damage certificate.

Stockyard sales Procedure:

Stockyard sales procedure describes the sales procedure of Nalco product through its
Stockyard. The respective zonal head exercises control over all activities related to the
Stockyard sales. This procedure is followed by all the Stockyard of company situated at
Jaipur, Kolkata, Vizag, Bangalore, Bhiwandi, Silivassa, and Faridabad.

.
Findings:

The demand of aluminum metal fluctuates from time to time depending upon the
prevalent economic scenario, GDP growth, market dynamics, substitution effect, funds
availability, growth of consuming industries such as power, construction, automobile,
packaging etc. and a host of other factors. To be able to market its products effectively
at present, the Company’s Marketing Department, consists of Domestic, Export,
Marketing Finance and Logistics Departments. Right since inception, NALCO
Management has been pursuing a marketing strategy of balancing domestic sale vis-à-
vis export so that the realization obtained is optimum.
The Company sells its products in the domestic market ex-plant and ex-stockyard. The
Company’s Smelter Plant is located at Angul and it has nine stockyards located at
Jaipur, Baddi and Faridabad (Northern Region), Kolkata (Eastern region),
Visakhapatnam, Bangalore and Chennai (Southern Region) and Bhiwandi and Silavssa
(Western Region).The customers are contacted by Marketing executives working at
corporate office at Bhubaneswar and at regional offices located at New Delhi, Kolkata,
Chennai and Mumbai and branch office at Bengaluru. Considering the market scenario,
demand-supply trend in domestic market, inventory holding, LME price trend and other
factors, the domestic prices and discounts are fixed for different products for sale in the
domestic market. This pricing policy is uniformly applicable to all its customers and the
price ruling on the date of despatch is applicable irrespective of the date of financial
arrangement made by the customers. In order to have consistent product supply and
better customer satisfaction as a marketing strategy in domestic market, NALCO enters
into annual MoUs with number of customers for supplying minimum agreed quantity
every month. This has been appreciated by customers and NALCO is able to maximize
its sale through MoU customers in the domestic market. The MoU scheme was
introduced with effect from 2002-03. With the increase in production capacities of
NALCO and its competitors the Company is planning several new strategies to increase
its presence in the domestic market. The Company exports its products through the
ports of Visakhaptnam, Kolkata and Paradeep. Presently, the exports made by NALCO
are generally on forward delivery contract basis.
Suggestions:

The supply chain for a company should be developed in advance considering the
following factors:

1. Analysis of demand pattern region-wise and seasonal variation.

2. Flexible transportation system, which can sustain change of different
parameters at the time of need.
3. Obtaining strong relationship with carriers and vendors.
4. A proper logistics information system between manufacturers and
purchasers.
The Company completed its brown field 1st phase expansion in late nineties and 2nd
phase expansion has been partly completed and remaining part is nearing completion.
The company has plans for 3rd phase brown field expansion, Apart from the above the
company is planning to set up alumina plant at Andhra Pradesh, aluminum plant at
Sundergarh in India apart from some International projects abroad mainly to take care
of surplus alumina.
Logistics and supply chain management is the lifeline of any company. To cater to such
voluminous growth, the whole chain of logistics starting from augmentation of
Railway/Road facilities at the source rolling stock to carry the goods, the intermediate
hubs and end points at the stockyards or major destination points of customers need to
be strengthened.

The following aspects may be considered for Nalco’s expansion program:

01. Infrastructure at exchange yards and holding yards should be augmented such as
increase in railway tracks, improvement in signaling system, providing level
crossing/road over bridge, improvement in unloading system (full rake) etc to handle
the increased traffic and avoid demurrage charges.

02. A special freight corridor or doubling and electrification of existing railway line
between Damanjodi and Angul wherever it does not exist, can be made on PPP basis to
handle the increased traffic. Proposal may be explored with Railways for establishing a
MGR System for transportation of alumina and coal from/to Damanjodi.

03. The possibility for bulk export and import of coal, alumina and aluminum metal and
other major input materials on a joint venture with shipping companies may be
explored.

04. For aluminum movement, the following aspects may be considered for
implementation.
 Though transportation of Aluminum metal using rail is cheaper compared to by
road, yet the rail transportation in NALCO depend on quantum of export as most
of the domestic sale is catered to by road transportation. For the cost benefit
aspect, the trend has to be reversed. Also, as per the industry standards,
movement of products/commodity over 500 KM distance, rail is the preferred
mode of transportation. Further, Nalco’s road haulage cost from Angul is about
30% higher than the market rate, due to socio-political issues prevailing in an
around the place. The augmentation in railway facilities should be
commensurate with the expansion so that the percentage of railway
transportation may improve.
 The increased usage of rail transportation can be efficiently managed by rail
containers. The present unreliable service of Indian Railways can be addressed
by utilizing the services of container train operators, licensed by Railways to
operate on their network. Just like inventory management, Nalco’s domestic
customers may be categorized into A, B & C types depending on their amount
of off-take and optimization model can be undertaken to fulfill their
requirement.
 To avoid delay in dispatch process due to manual processing of documents, an
IT integrated dispatch model on real time basis should to be developed. It can be
a part of ERP system to aid in production planning and inventory management.
Further, the real time information of dispatch system will strengthen the MIS to
reduce processing delays and improve efficiency.

 Nalco should develop consensus for adopting ICD model in-house or hire
central facilities available to address its logistics concerns.

 Nalco may consider outsourcing aluminum logistics operation from plant to

various customers, domestic or international to a dedicated and reliable service
provider having rail & road transportation and warehousing capability. Such
service provider offering end to end solution will cover both the short term and
long term risk which NALCO and its customers are exposed to, on account of
timeliness, cost and security.
 Nalco should carry out introduction of higher loading capacity trucks. This will
increase efficiency and reduce transportation cost.
 Increased use of IT to enhance customer satisfaction such as creating a login for
each customer in Nalco’s website wherein he can get all details regarding his
despatch instructions, despatch details, DI outstanding details, his accounts with
NALCO and the credit balance etc.