1.

Porters Value Chain Tata Steel

The Tata Steel Group has a balanced global presence in over 50 developed
European and fast growing Asian countries, with manufacturing operations in
26 countries and various ongoing projects in different parts of the world. Like
any manufacturing industry, steel has its own value chain. For the sake of
simplicity, let us divide it into two - primary steel-making and finishing. Tata
Steel's strategy is based on breaking up this value chain and putting each part
where it is the most cost-effective. Thus, primary steel is produced in India,
where there are large deposits of iron ore, while, other Asian markets like
Thailand, Vietnam, Shanghai, etc., are now a key focus for Tata Steel and are
better addressed by taking the semi-finished steel to these countries for
finishing and sales.

Demand in countries like the US, Japan and South Korea has flattened and
growth will take place only at 1.5 per cent to 2 per cent - for replenishment of
consumption. Developing countries like China and India will show robust growth
in the future. Tata Steel believes globalization is a method by which it can put
the right part of the value chain in its right place in the world and link it up
properly - finishing facilities in places where customers exist, and primary
manufacturing facilities in places where manufacturing is competitive.

1.1 Supporting Activities

1.1.1 Firm Infrastructure

Tata Steel is headquartered in Mumbai, Maharashtra, India and has its

marketing headquarters at the Tata Centre in Kolkata, West Bengal. It has
a presence in around 50 countries with manufacturing operations in 26
countries including: India, Malaysia, Vietnam, Thailand, UAE, Ivory Coast,
Mozambique, South Africa, Australia, United Kingdom, The Netherlands,
France and Canada.

Primarily steel is produced in India, where there are large deposits of iron
ore. Earlier, some portion of their semi-finished steel was sold in the
market, but now it is looking at downstream products, as the margins are
higher (it is not selling semi finished steel in the markets anymore but
using all of semi steel to make finished steel).

The company harnesses its deposits of iron ore in Noamundi, Joda and
Katamati in the states of Jharkhand and Odisha and has coal mines at
Jharia & West Bokaro.

Tata Steel has implemented established a network of 20 stockyards

across India, which serve as service hub in each consumption cluster.
 Tata Steel has set a target of achieving an annual production capacity of
100 million tons by 2015; it is planning for capacity expansion to be
balanced roughly 50:50 between greenfield developments and
acquisitions. Overseas acquisitions have already added an additional
21.4 million tonnes of capacity, including Corus (18.2 million tonnes),
NatSteel (2 million tonnes) and Millennium Steel (1.2 million tonnes). Tata
plans to add another 29 million tonnes of capacity through acquisitions.
Major greenfield steel plant expansion projects planned by Tata Steel
include: a 6 million tonne per annum capacity plant in Kalinganagar,
Odisha, India; an expansion of the Jamshedpur plant in Jharkhand, India
from 6.8 to 10 million tonnes per annum; a 5 million tonne per annum
capacity plant in Chhattisgarh, India; a 3 million tonne per annum
capacity plant in Iran; a 2.4 million tonne per annum capacity plant in
Bangladesh; a 10.5 million tonne per annum capacity plant in Vietnam
(feasibility studies are underway); and a 6 million tonne per annum
capacity plant in Haveri, Karnataka.
1.1.2 Human Resource Management

Tata Steel is equal opportunity, merit-oriented, gender-neutral employer,

remuneration and career progression is based entirely on responsibility
and performance.

Tata Steel is well-known for its employee-friendly human resource

policies. Tata Steel has set up three residential colonies for its employees
at Trijanga, Sansailo and Gobarghati. These colonies provide all-weather
motorable roads, electricity, and clean running water from taps, a well
laid-out drainage system, community halls, and recreation facilities for
their children, places for religious ceremonies.

The top management of the company was rudely awakened when, in the
early nineties, it went overseas to raise US $ 100 million from
international investors. Potential investors acknowledged Tata Steel as a
good company but were unhappy that it was grossly overstaffed. Its
employee strength was well beyond international norms. This prompted
the top management to begin to seriously address the issue of
headcount in the company. Based on various initiatives taken, the
company set a record for reducing manpower while maintaining the
human touch. Its Employee Separation Scheme (ESS) has become a
benchmark in terms of its humane approach. The manpower was
progressively brought down to below 40,000.

1.1.3 Technology Development / Process Improvement

Tata Steel had to indigenously develop the stamp charging technology

through painstaking laboratory tests and pilot plant trials over a ten-year
period. After successful pilot plant trials, one of the coke ovens was
 converted to stamp charging. The new technology reduced the use of
imported coal for coke to a large extent. This has given the company
significant sustainable cost advantage because Indian coal is relatively
low-cost and the company has an unlimited supply of medium coking
coal.

The companys own iron ore contained high phosphorous, which is not
conducive to producing high quality steels, a process was developed to
manufacture low phosphorous steel through in-house technology.

Tata Steel had earlier used large quantities of liquid fuel from one of the
petroleum refineries. Significant process changes enabled the company
to totally stop the use of liquid fuels. With a focus on saving energy costs,
the company set up an integrated system

The management decided to explore the possibility of using the blue dust
as raw material for its sinter plant. This change resulted in uniform
mining operations.

By benchmarking with the best plants in the world such as Nippon Steel
(Japan), CST (Brazil), and Posco (South Korea), the production of the
sinter plant was increased by 60 per cent which was as good as having
one sinter plant free.

Tata Steel uses extensive balance card methodology to benchmark its

processes. The Managing Director looks after the balance scorecard.
Through this process, the Managing Director puts himself through the
credibility test by including himself in the accountability process. The top
managements checklist for driving company change included the following:

Lead the change process and take personal ownership; the responsibility
cannot be delegated.

Be the role model and the first to change; personal involvement and
investment of time is key to success.

Create endless opportunities for two-way communication within the

company.

Create a sense of urgency (not panic); embrace change even when it

does not appear necessary.

Set up a small hand-picked group to drive change in the organization;

train and empower them.

Set key result areas (KRAs) carefully; include the top management in it.

In 1996, the company systematically embarked on the quest for excellence for
the organization as a whole through the JRD Tata Quality Value (JRDQV) process
which leads to JRDQV Total Quality Award. Managed by the Tata Quality
Management Services (TQMS), Pune, for Tata Group companies, the process of
qualifying for the JRDQV Award requires the company to successfully pass
through exhaustive tests conducted by trained external assessors over a three-
month period. Adapted from the stringent Malcolm Baldrige criteria for
business excellence, the Tata Business Excellence Model (TBEM) covers almost
every aspect of a corporation including visionary leadership, focus on the
future, focus on results, organizational agility, customer-driven excellence,
valuing employees and partners, management by fact, managing innovation,
systems perspective, and public responsibility.

1.1.4 Procurement

Tata Steel has coal mines at Jharia & West Bokaro, in the state of Jharkhand,
located within 200km from Jamshedpur. This coal is used for coking processes.
Tata Steel's iron ore units are located in Noamundi, Joda and Katamati in the
states of Jharkhand and Odisha. The Steel Company's iron ore units produce
various grades of high quality iron ore including rich blue dust ore. It has other
raw material units in Canada, Mozambique, Ivory Coast and South Africa.

1.2 Primary Activities

Inbound logistics

Iron ore and coal is sourced from its own mines; uses Indian coal and does not
rely much on imported coal for coking purposes; eliminated its dependency on
liquid petroleum products, rather used gases produced from blast furnace, coke
ovens was used as fuel.

Operations

Tata Steels Indian operations draw its greatest strength as one of the lowest
cost producers of steel in the world. Tata Steel has a strong retail and
distribution network in India and SE Asia. Tata is a major supplier to the Indian
auto industry and the demand for value added steel products is growing in this
market and thus, it has shifted its focus down the value chain by changing semi
finished steel products to finished steel products. JIT approach used to fulfil
customer orders.

In the past, lowest price was the basis for obtaining an order. This was further
reinforced by the customers aggressive approach of treating steel as a
commodity product. Thus, supplier-customer relationships, far from being
cooperative, were largely transactional. In mid-2001, the company was
restructured along the profit centre concept with a view to making it more
responsive from its old Customer account manager concept. Two distinct profit
centres, viz., flat products and long products were created, each headed by a
Vice President (VP), who was responsible for both manufacturing and sales.

The company made some headway in setting up service centres across the
country to deliver products to its customers using the principles of JIT (just-in-
time) manufacturing. It was not uncommon for the customers to squeeze Tata
Steel on price frequently demanding a 3 to 5 per cent drop in price each year.
With the resulting suspicion on the part of both, it was clear that neither was
gaining from the relationship. Customers clearly began to have many options.
Tata Steel launched launched customer value management (CVM) initiative for
business markets and retail value management (RVM) for its retail markets.

CVM enables the company to craft competitive value chains. These customers
were selected using a variety of criteria. This has enabled it to successfully
come out of the commodity trap that it earlier found itself in.

Tata Steel went for a home-grown process to implement RVM by adopting the
TOP methodology (that the company earlier perfected to achieve drastic
improvement of its plant operations). Through RVM, it cleaned up the working
of the retail channels.

Outbound logistics

Tata Steel has implemented various strategies, including established a network

of 20 stockyards across India, which serves as a hub in the respective
consumption cluster. Consumption clusters accounting for 80 per cent of the
demand and at an average lead distance of 1700 km are served by outbound
logistics.

In SE Asian operations, Tata Steel had implemented Vehicle Tracking system

(VTS) way back in 2002. In line with the Companys endeavour to improve
customer service, approx 1600 Global Positioning System (GPS) mounted
vehicles were been deployed by transport partners of material movement
across India. This is the largest implementation of GPS enabled fleet in the
steel industry.

Marketing & Sales

Tata Steel operates in B2B, B2SME and B2C markets, thus, different vehicles to
capture the needs of customers have been deployed. IT and SAP platforms are
extensively used and extended sales force of channel partners acting as
learning posts that help in creating differentiated value propositions. Tata Steel
has made inroads on branding of steel and thus has products and services
offerings for its customers, distributed through its channel network. It has
developed product and market strategies to have a leadership edge on the
Automotive and Construction sectors.

Service
Tata Steel has worldwide network of service centres which help in fulfilling
customer requirements.