Sandipan Chakaravortty*

Prologue
Tata Ryerson was set up in 1997 at a pace not heard of earlier. Planning the road ahead for Tata Steel, we felt that we had to compare with the best steel companies in the world. We realised that we can get additional margins either by branding our products or by working on our supply chain. Till then we were happy if we kept the time and delivery schedules. But we now decided to benchmark our service.

Picture this. For an output of a coil of 25 tons, you need a trailer; a truck can carry only 10 tons. You require a huge crane to manoeuvre that coil. Suppose the customer wants to make clutch breaks. The piece that goes into his machine may be 8 inches long, 2 inches wide and may weigh about 300 gm. Think of the plight of the customer who doesn’t know what to do about that huge coil to make it usable.

We had already heard about the prevalence of steel service centres in the US and Europe that could source steel, load and unload it, cut it to shape and size, and give it to customers as and when they wanted it. The culture required for this activity was different from that prevalent at Tata Steel. Tata Steel deals effectively and efficiently with big customers like Telco and Maruti. But how can it deal with customers who want 1 or 2 tonnes?

The theme
With the steel centre, customer satisfaction zooms up. When there is no such service, customers have to buy from traders in the market and make do with whatever the trader supplies, since the only other option is to invest Rs 10 crore in equipment for processing. So the customer agrees to pay the premium, which may be very high.

But the processing solution is only one part of the service centre’s advantage. As the centre deals with the final and actual user, it is in direct contact with him. So it becomes the steel producer's best distributor, and the producer’s networking and reach goes up manifold.

The players
Having decided to set up a service centre, we went all over the world in search of options. We saw two models: while in Europe the steel producers had their own centres, in the US the centres worked as standalones.

Among the American companies in the business was Ryerson Tull, the largest in the world. It had 72 centres on the American continent, processed 4 million tonnes and even owned the steel plant Inland Steel. It made sense to tie up with the best partner in the world.

But we opted for the European model as we were thinking of a centre promoted by Tata Steel. Ryerson Tull agreed, as it wanted to expand into India, China and Southeast Asia. Hands were shaken and the company came up as a joint venture.

The story — act I
We decided to start with processing and then get into distribution. The first processing equipment was put up in Jamshedpur. We set up the second in Pune as we felt that companies like Fiat and Daewoo would come up there.

But when that didn’t happen we decided to concentrate on growing only in Jamshedpur till we got a more stable view of what was happening in India. The next expansion, in 2001–2002, was made in Jamshedpur itself. Now we are planning to expand in the north and south in phases. The Tata Group’s philosophy is to double profits in three years and turnover in four. But we decided to double every year. Last year our profit was three times that of the year before.

In order to double every year, you must have new products and new markets. So we have added new product lines. We started with hot-rolled coils, went to cold-rolled coils in the second year and galvanised iron and corrugated coils in the third. Next year we are thinking of stainless steel. A little later we may also consider aluminium as our equipment can process it and our automobile or construction customers need it.

We started with three distribution outlets, in Jamshedpur, Kolkata and Pune. Last year we added Faridabad, Chennai, Bangalore, Ranchi and Hyderabad. We plan to go to 50 locations in the next three years.

Act II
We have given a lot of thought to the human resources that we need. Apart from the engineers and MBAs in the ‘thinker’ category, we also need ‘doers’ of two kinds — those with technical knowledge and those with local knowledge.

For a network in a small town in Tamil Nadu, I can’t send a Bengali who doesn’t understand the language. But such people cannot be transferred. So we decided to take in people on a commission basis.

On the technical front, we don’t want engineers but diploma holders who are good with hands-on skills. About half the pay for these people is variable while the rest is fixed. This has worked exceedingly well for us.

Our major clients today are Tata Motors, Wheels India, Whirlpool, Maruti ancillaries in the north, Ashok Leyland and the TVS group in the South. In the East we have Hindustan Motors. We have some other clients like Siemens and GEC. We are the first of our kind in India. We have three competitors in Hyundai-Posco, Mahindra and Mahindra and Bansal. We are larger than the three put together.

The name of the game today in logistics is just-in-time service. If my customer in Kochi wants deliveries in the morning and evening, the transit time from my nearest stocking point — Chennai or Bangalore — must be 12 hours at the most. If the supply doesn’t go to the customer on time, the plant comes to a standstill. We cannot afford to fail. This would be impossible without a real-time connection that we have through SAP.

Today we process more than 500,000 tonnes in Jamshedpur, which is the largest unit of its kind in the world. We are the benchmark for processing in India. We have the best equipment in the world.

Act III
Our growth path is unlimited. We have proposed a turnover of Rs 500 crore by 2006. Tata Steel, for whom we are processing 0.7 million tonnes currently, is thinking of maximising its distribution through us. We propose to take it up to 2 million tonnes next year. In a few years we plan to take complete responsibility for all their products, with or without value addition.

Competitors are requesting us to process their material. The next question is whether we are a 100 per cent Tata Steel product company or not? As we have been promoted by Tata Steel, our first loyalty is to the company. But we are free to buy and process steel from other sources, as long as they do not compete with Tata Steel.

If a customer comes to us for a product Tata Steel is unable to provide, we give them material of another origin. This only helps our promoter as the customer can use us as a single-window shop. We are, in fact, going to brand our process. We stand guarantee for the products no matter what its origin. This is catching on very well with the ancillaries.

The question I’m taking to my promoters this year is that if I say no to other steel producers, they will get their job done by someone else. Is it better that we do it, or should we wait for someone else to do it and then compete with that someone else?

Epilogue
WTO rules affect our industry in a positive way. The service industry will hit the roof. We may have more competition from other steel producers like Sail, Jindal, Essar or Ispat. Nippon Steel or Kawasaki Steel will come into the market and may require service centres. In fact, there is an opportunity for us to tie up with any of the above.

The overseas market is far more mature. What has happened in the West is that you either have one big company tied up with the service centre or you have small centres tied up with and dedicated to the end user that buys from the service centre. Here too, the players in the middle category will eventually disappear.

As told to Saloni Meghani

* Sandipan Chakaravortty is the managing director of Tata Ryerson.

Uploaded on October 27, 2003