Supply Chain Management

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1. Risk mitigation in limestone supply chain

Introduction:
Limestone is an essential ingredient in steel making. A significant proportion of the limestone in the
world is concentrated in the Persian Gulf region. India also has limestone reserves but these are of
lower quality. Currently Tata Steel Ltd (TSL) sources 3 million tonnes of limestone of which upto 90%
comes from Persian Gulf and balance from India. The limestone from Persian Gulf is by far the
cheapest option for TSL (by 15%) on value in use basis. Any disruption in steel production due to
non-availability of limestone can cost TSL Rs 10 crores per day. The lead time of the limestone supply
from Persian Gulf is 45 days and from mines in India 7 days. TSLs suppliers in Persian Gulf and easily
provide more limestone to TSL, while from India the sourcing can be 2-3X of what it is today.
Developing new sources in other parts of the world will take 6-8 months due to requirement of
testing and trials.
Problem Statement:
The Persian Gulf region has experienced several conflicts. These conflicts have the potential to
disrupt the supply chain of goods from this region, including limestone, for an extended period of
time. In such a situation, TSLs current reliance on this region for limestone poses a significant risk.
The senior management in TSL realises the extent of the risk and would like to have a strategy to derisk the supply chain while keeping costs under control.
Critical Case Questions:
The Category Manager for limestone has been given the task to propose the strategy.
1. What could be the possible sources of risk for the current limestone sourcing strategy for TSL?
2. What could be a set of early warning indicators (EWIs) that would give the category manager
adequate notice that these risks are going to materialise?
3. What are the risk mitigation measures that you would recommend to be taken (a) no regret
moves in as is situation without waiting for any adverse movement in the EWIs, and (b)
calibrated to adverse movement in the EWIs?
4. What is the cost of mitigating the risk as per your proposal and is it justifiable?

Your answers should be supported by analysis using the data provided. You can make other
reasonable assumptions and source data/information from public domain.

2. Contracting Strategy to counter price increase

Introduction:
Ravi Khanna, Category Manager in Procurement for Industrial Oil at Tata Steel, had spent the
afternoon attending a cost review meeting. Steel Industry is going through a challenging phase with
global steel prices going down, lack of demand and availability of low cost imported steel in market.
Tata Steel is also going thru this difficult phase. The company is relying on the Procurement team to
reduce cost and ensure that the companys profitability is maintained.
Aware of the difficult situation, Ravi was currently thinking about his negotiation meeting scheduled
next week with the marketing team of Hessel Oil. Hessel Oil is a major supplier to Tata Steel for
lubricating oils. Hessel Oil also has the biggest share in domestic market of lubricating oil having a
size of ~ 2 Million KL1. Owing to excellent quality of their product which is backed by a strong R&D
team, Hessel Oil has helped Tata Steel improve their production quality as well as reduce customer
complaints. There was no record of any quality issue with Hessel oil for last five years. Ravi had a
discussion with the operations team as well and they are quite satisfied with the performance of
Hessel oil. In fact, there are many joint projects going on with Hessel Oil to reduce the specific
consumption of lubricating oil and Tata Steel is getting good support from Hessel Oil for the same.
Problem Statement:
The problem in front of Ravi Khanna was the latest price offer from Hessel Oil in which they had
asked for a 20% price increase for the new contract. During initial negotiation, they had refused to
consider any discount citing increasing price of their imported additives coupled with depreciation of
rupee and rise in other fixed costs. Ravi had explained to them the current financial situation of the
company. However, Hessel Oil didnt reduce their offered prices citing that their sales was also
impacted due to slowdown in steel industry. An RFQ sent to other vendors in the vendor panel had
indeed given some low price options. However, these offers were from relatively small companies
which had limited market share. Also, these companies were new to Tata Steel with no past track
record.
Annual requirement of lubricating oil at Tata Steel is ~ 80,000 KL. Ravi knew that giving 20% price
increase in this big contract was not an option for the company at this point of time. At the same
time, loosing a supplier like Hessel Oil was likely to create operational issues and possible quality
problems. Ravi was also aware that Hessel Oil was the only supplier for many grades of lubricating
oil which are critical to operations.
While a high level analysis of additives prices was available with Ravi, Hessel Oil had declined his
request to divulge the information of specific grades of additives that they are using citing NDAs with
1

Data cited in the case is for illustrative purpose only. The name of suppliers, volume, business share and
prices are not representation of actual data.

their technology partners. Ravi was aware about some additives manufacturer in India as well and
they had listed Hessel Oil as one of their customers. Ravi was not sure how much information can be
obtained from Hessel Oil regarding their input material cost.

Critical Case Questions:

Ravi needed to create to balance between organisational goals of cost reduction and operational
reliability. He also knew that apart from finding a short-term solution to this problem, he will have to
formulate a long term strategy to avoid such a situation in future.
5. Can you help Ravi in evaluating the possible options he has (separately for the immediate term
and longer term) and what could be the right strategy to adopt. You may make reasonable
assumptions while articulating your answer.
6. What could be the innovative contracting options that Ravi has to achieve his objectives for
short and long term.

Market Share of Lubricating Oil Companies

6%
7%
Hessel Oil
12%

40%

Restex
BeMol
Vaccul Oil
Quil Lub

15%

Others
20%

Indexed Price Offers for lubricating Oil (Current

Price =100)
140
120
100
80
60
40
20
0
Hessel Oil

Zen Oil

Quil Lub

Restex

Roto Oil

Share of Lubricating Oil companies at Tata

Steel
6%
10%
Hessel Oil
12%

Restex
Quil Lub
72%

Others

3. Managing the supply chain of a critical consumable (Mag 99%)

Background: Tata Steel founded Indias first industrial city, now Jamshedpur, where it
established Indias first integrated steel plant in 1907. 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 and another 3 mtpa in Phase 2.
Introduction: This case pertains to supply chain constraints faced for a consumable having
monthly requirement of ~ 250 MT. As this is critical for steel production, continuous
availability is key. At the same time, owing to its hazardous nature, limited inventory can be
kept for this material in the plant.
Problem Statement/Challenges Faced:
1) The production of this consumable is concentrated entirely in China. (China
constituting 90% of total global production capacity). This poses a serious geographic
risk to the sourcing of this material and all steel companies in India face the same
problem.
2) The material is very hazardous in nature so special storage license and special
transportation is required which can be done by few specialized vendors only, who
therefore have high bargaining power.
3) Our consumption of this material is expected to double in next six months owing to
some process changes. The current supply chain is not equipped to handle this
volume.
4) There are no available substitutes for this material at present. Although globally
there are some variants, very few companies are using them and the efficiency of
the same is yet to be established.
5) There is high lead time due to import and uncertainty in lead time.
Critical Case Questions :
1) Given above, what could be the improvements in the current supply chain covering
the following aspects, among others :
a. De-risking
b. Increasing reliability
c. Inventory planning and logistics
d. Partnerships with vendors