Until a few years ago, Tata Chemicals was content with its role in servicing the Indian market. The commodity mindset was so deeply ingrained in everybody’s mind that the emphasis was on price and production, rather than customer satisfaction.
All that is a thing of the past. More than ANSAC’s dumping threat, it was the deadline for complying with the new global trade norms of the World Trade Organization (WTO) that made Tata Chemicals take note of the new business dynamics. While many chemical manufacturers viewed WTO and the China factor as a threat, the company saw it as an opportunity to pursue its global dreams.
In the post-WTO era, it was obvious that the markets would widen. So the first thing that Tata Chemicals could do was to benchmark its cost and customer interface processes with global best practices. Tata Chemicals is one of the largest manufacturers of fertilisers and soda ash in the country. The immediate threat came from cheap imports. But Jehangir M Engineer, assistant economic advisor of the Tata Group, says, "Fertiliser is not under the bound rate so WTO provisions don’t apply. But we are under pressure in the case of soda ash. Our tariff is already at 20 per cent and is well below the bound rate of 40 per cent."
In order to align with global practices, one must understand the global landscape of the industry. The trends and practices adopted by global players fall under the following heads: cost reduction, consolidation, globalisation, increased use of R&D, IT enabling of business processes, and focus on core businesses. Tata Chemicals’ theme was no different.
Sharing the vision
The act of turning around the work practice of the entire organisation and exposing the backend operations to the customer is easier said than done. For a company which has been used to serving local customers with what they produced, it came as a culture shock. But the management was successful in sensitising all the layers of the organisation about the impending global threat. It carried out a WTO audit across all departments.
"It is important that the top management’s thinking gets percolated to the bottom. Today our distributors, field persons and workers at Mithapur, the oldest plant, discuss the threat from China and ANSAC. It shows the awareness and the urgency," says Kapil Mehan, vice president, sales and marketing.
When Tata Chemicals reviewed its internal systems, it found that its marketing processes were not in line with the market’s requirements. So it drew a multi-pronged customer focus strategy. It began by restructuring the marketing department, from the regional or geographical approach to the customer approach — key accounts and channel accounts. This new approach has given the company the opportunity to assess and segregate profitable and unprofitable customers and focus the key account efforts on the former. Tata Chemicals followed up this process with customer satisfaction surveys to improve product and service levels.
Over the last year, key account managers have initiated numerous joint improvement initiatives with key customers. "In the post-WTO period, the choice available to customers has widened. So it is important to manage customer relationships better and improve the interface," says Mr Mehan. For instance, when Tata Chemicals’ biggest customer, Nirma, became a competitor, the company plugged the gap immediately through long-term contracts with new and other existing clients. The lesson it learnt in the process was that marketing is not the function of the marketing department alone; it is the responsibility of everyone in the company. Today, even a shop-floor employee finds a place in joint cross-functional teams that work with customers. However, the full impact of this restructuring will be evident only in the years to come.
Putting Manthan on TOP
Cut to the present. The company is now using information technology extensively to remain connected with the customer. Key customers can access their order status online through the enterprise resource planning software implemented by Tata Chemicals.
In commodities like chemicals it is price more than the client relationship that dictates buying decisions. While European bulk chemicals makers are working on numerous cross-business improvement projects and demand-capacity alignment to cut costs, Tata Chemicals has launched project 'Action 500'.
Says Mr Mehan, "We have stated our intent to be the lowest cost soda ash producer in the world. We have achieved Rs500-a-tonne reduction in soda ash cost. We are also close to achieving our target price per tonne." The initiative was the starting point of Project Manthan, launched by Tata Chemicals. This project is similar to Tata Steel’s TOP project.
Although a lot of domestic demand potential is yet to be tapped, Tata Chemicals is aggressively looking at opportunities abroad to broaden its market base. There are two reasons for this move. One of these was the potential of the Indian market and the subsequent liberalisation that has resulted in the targeting of India by US and Chinese chemicals manufacturers. Secondly, it was only natural that the geographical spread would give Tata Chemicals the ability to optimise its supply chain cost globally. Higher local levies, energy cost and cost of money continue to be irritants, but that has not deterred the company in global trade.
As per a Confederation of Indian Industry study, says Mr Mehan, "The effective rate of protection required is 37 per cent." Tata Chemicals hopes that Manthan will address all the cost-related disadvantages that are within its control and help the company in its global foray. India currently accounts for just 1.3 per cent of the global chemicals trade of $545 billion. Tata Chemicals has made a slow beginning on this front. It exported over 1 lakh tonnes of soda ash to markets like Thailand, Bangladesh and Indonesia in the last financial year and hopes to improve upon that figure in this fiscal.
Globalisation is not just about trade; it is also about scouting and building new business opportunities. "We are looking at strategic alliances and partnerships that will give us market access and distribution reach," says Mr Mehan. Tata Chemicals has already tied up with a Japanese trading house and Tata International for international marketing. The company is also trying to leverage these relationships to source raw materials like coal and coke at cheaper prices. The cost-reduction programme encompassed all functions with the micro management of all sub-tasks.
Now that cost management is a way of life, Tata Chemicals is taking the Manthan programme to the next stage of quality. "We believe that by ensuring quality in processes and products, we will be in a position to reap significant cost savings," says Mr Mehan.
Tata Chemicals has managed to address all the immediate concerns and threats, with the exception of research and development. "We admit that we have not done much on the R&D front or in the new product development area. Hopefully, our diversification will address these concerns," says Mr Mehan. Tata Chemicals is looking at new acquisitions and growth opportunities in knowledge chemical areas like biotech and speciality chemicals. Globally, knowledge chemicals are expected to grow at 3.75 per cent. They also have a higher profit margin, compared with the 0.6 per cent growth rate of basic chemicals, and margins of less than 5 per cent.
So far so good. The growth plan chalked out by Tata Chemicals is in line with the Vision 2010 plan laid out by the task force set up by the government. The biggest plus of all the initiatives that the company has undertaken so far is the change in the mindset of the employees. "The market fundamentals have not changed much, but the mindset has. Earlier, price revisions and response to such market developments would happen over a three-month period. Now the response is in less than 24 hours," says Mr Mehan.