PROCUREMENT PRACTICES

AT TATA STEEL

---MARGESH K.DESAI
 INTRODUCTION
Today the procurement function of most of the high-technology
companies encompasses every effort and interaction that goes into
planning, sourcing, making and delivering a final product.
 It is not confined to activities such as floating enquiries, receiving
bids and placing orders.
Since material cost accounts for over 50 per cent of the total cost of
production of steel, efficient functioning of material management has
received greater attention and sourcing has been identified as one of the
thrust areas for improvement in most of the steel manufacturing
 WORLDWIDE CHANGES
Organizations have become very much concerned about the purchasing activities as these have
a direct bottom-line impact on the business profit of the company. To handle these activities in
a more systematic and structured way many companies all over the world are following a
process called ‘strategic sourcing’
Through strategic sourcing, organizations are achieving a substantial amount of savings
through the adoption of different techno-commercial, cost-effective measures and leveraging
the knowledge
Strategic sourcing has been defined as ‘a disciplined, systematic process for reducing the total
procurement cost of purchased materials, products and services while maintaining or
improving.

Today the focus is on Total Cost of Ownership (TCO) not the purchase price. TCO is a
structured approach to properly understand the (a) different costs involved so as to get a
holistic approach towards the overall costs .
 PROCUREMENT DIVISION OF TATA
• Prior to strategic sourcing, the procurement division of Tata Steel
was a typical purchase organization driven by transactions and
negotiations focused on price reduction only, with limited
knowledge about the commodity and its end use in the process
of steel-making.
• Over the years, this division has changed itself from a
transactional unit to a knowledge-based buying organization
through the evolution processes it has undergone over the last
five years
• After the introduction of strategic sourcing in 1999, the key
service of the division has been identified as fulfilment of a
customer’s requirement through knowledge-based sourcing of
different commodities, as well as services, related directly or
indirectly to steel-making processes
Evolution of Procurement Organization at
Tata Steel
Negotiation Approach V/S Strategic Sourcing
 Strategic Sourcing Approach

 Tata Steel’s approach is based on the principle that strategic

procurement is an exercise beyond cost reduction.

 Commodities used for steel-making processes and their allied

services are being selected and prioritized for study using strategic
sourcing tools, before their annual procurement, depending upon
their annual purchase value and criticality of application.

 After the selection of the commodities, a Commodity Competence

Team (CCT) is formed which is a cross-functional team wherein
people from different departments such as User/Operation,
Research and Development, Quality Control, MRO, Supply
Management and Finance come together to formulate sourcing
strategies for a commodity purely on a techno-commercial basis
 OBJECTIVES OF TPD
• Decrease specific consumption and specific cost of commodities on life-cycle costing
basis.

• Source consistent quality products.

• Ensure continuous supply of materials

• To increase the productivity of blast furnaces or steel-Melting shops by decreasing the

down time through the use of improved quality, cost-effective materials, wherever
applicable.
 VARIETY SOURCING
 Global Sourcing
 Supplier Value Management
 Performance Based Procurement
 Life Cycle Costing
 Bottom Up Costing
 Reverse Auction
 Long Term Contract
 Product Substainsion
 Conversion
 PRODUCTS
 Aluminium Wire

 Desulphurization Compound

 Graphite Electrodes
 STRAGIES

Total Refractory Management


Vendor Selection through comparative assessment


Reduction of Life-cycle cost


Product Substitution


A knowledge-based negotiation was conducted based on the cost model developed


Performance Guarantee Clause


Change in specification
 BENEFIT OF S.S FOR A PARTICULER
PRODUCTS
The lower specific cost of the DS compound in terms of Rs. of hot metal

has reduced the total procurement value of DS compounds by 25 per cent

Decrease of specific cost of aluminium by six to eight per cent

The commodity study on graphite electrodes has resulted in a savings of

almost 20 per cent of their annual procurement value

 Conclusion

• The strategic sourcing methodology in Tata Steel utilizes a phased

management process, cross-functional teams and a set of analytical
tools
• Value is created by better buying decisions because buying decisions
have become business decisions.
• The structured methodology of strategic sourcing activities in Tata
Steel helps to lower the total cost of procurement of different
commodities, considering both the tangible and intangible benefits, by
studying and analysing the techno-commercial aspects mainly on a
life-cycle costing basis wherever possible and this has helped Tata
Steel to become one of the lowest-cost producers of steel in the world.
• With the implementation of strategic sourcing principles in most of
the high-value and critical commodities, before their procurement, the
steel company is achieving not only a substantial amount of savings
but also strengthening the ties with suppliers offering the best quality
products and services.
THANK YOU