B2B Final-check Inventory

Electro steel Castings Limited

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GROUP MEMBERS:

Sayan Shom Satyabrata Kundu Satya Seshadri Mohanty Saswat Ranjan Pati Sampreet Chowdhury Sayan Chakraborty

Acknowledgement

. This report bears the imprint of many persons who have worked in a group

constructively to make this project on Ductile Iron Pipes (DI) gain success. At first outset a heartiest thanks to ICFAI UNIVERSITY DEHRADUN for providing us an opportunity to assign such an interesting project helping us to gain practical knowledge on how things operates in the real world We would like to express heartiest thanks to my faculty guide Professor Anuj Jain for all the encouragement, inspiration & guidance that she has given me and without his help the project would have been incomplete. Above all we want to thank our family for their support and encouragement, which has always been a source of inspiration

Contents

i. About the Industry

ii. About the Company

iii. The Product –DI Pipes

iv. Customer of DI Pipes

v. Demand Issue

vi. Buying Procedure

vii. Nature Of Involvement Of Different Departments

viii. Buyer Supplier Relationship

ix. Assessing Marketing Opportunities

x. Segmenting, Targeting & Positioning

xi. Differentiation

xii. Trade barriers

xiii. Inventory Control & management

xiv. Disrtibution Channels

xv. Pricing Methodology

xvi. Competitive Scenario

xvii. NPD

xviii. Promotional Strategy

xix. Use of E-Commerce

xx. Bibliography

About the Industry

After Indian independence a dire need for industrial and infrastructural development was felt. In the initial years the Government of India played a pivotal role in laying the road map for India’s infrastructural growth and gradually private participation increased. This laid the foundation stone of construction, architectural and engineering services. In the first five-year plan, construction of civil works was allotted nearly 50 per cent of the total capital outlay for the country.

The first professional consultancy company, National Industrial Development Corporation (NIDC), was set up in the public sector in 1954. In the late 1960s government started encouraging foreign collaborations in these services. The Guidelines for Foreign Collaboration, first issued in 1968, stated that local consultant would be the prime contractor in such collaboration.

The objective of such an imposition was to develop local design capabilities parallel with the inflow of imported technology and skills. This measure encouraged international construction and consultancy organizations to set up joint ventures and register their presence in India.

It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital formation. Total capital expenditure of state and central govt. will be touching Rs. 8,G2,G87crores in 2011-12 from Rs. 1,43,587 crores (1999 2000).

The share of the Indian construction sector in total gross capital formation (GCF) came down from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to 48 per cent in 1993-94 and stood at 44 per cent in 1999-2000. In the 21st century, there has been an increase in the share of the construction sector in GDP and capital formation.

Future Challenges

The Indian economy has witnessed considerable progress in the past few decades, but the state of infrastructure is still is a far cry from being world class. The Union Government has underlined the requirements of the construction industry. With the present emphasis on creating physical infrastructure, massive investment is planned in this sector. The Planning Commission has estimated that investment requirement in infrastructure to the tune of Rs. 14, 50,000 crore or US$ 320 billion during the 11th Five Year Plan period.

This is a requirement of an immense magnitude. Budgetary sources cannot raise this much resources. Public Private Partnerships (PPP) approach is best suited for finding the resources. Better construction management is required for optimizing resources and maximizing productivity and efficiency.

Products & Services

DI spun pipes

DI fittings

Pig IronCI Spun Pipes

LAMC

EPC contractor

About the Company

. Electro steel Castings Limited (ECL) is a water infrastructure company providing techno-economic solutions for water supply and sewerage systems. The Company is India’s largest manufacturer, and one of the few manufacturers in the world, of ductile iron (DI) spun pipes. A lack of safe drinking water and proper sanitation is a significant problem in India, and the demand for safe drinking water is increasing at a rapid rate. In order to transport sufficient quantities of water from different sources, i.e. rivers, lakes or wells, to a treatment plant with minimal loss and then transport the treated water to the end-user, a reliable pipe material is required that is strong, long-lasting, corrosion resistant and reduces the risk of contamination. DI pipes possess these qualities and are currently the single most widely used type of pipe for the transportation of water and sewage.

Products and Services of Electosteel-casting Ltd.

The company started by producing steel castings and cast iron pipes at Khardah, West Bengal in 1959 and its first CI pipe factory was commissioned at Khardah, near Kolkata, West Bengal with an installed capacity of 14,400 TPA. The Company manufactures DI spun pipes, DI fittings and pig iron (an essential intermediate product in the manufacture of DI spun pipes and cast iron (“CI”) spun pipes) at its facility in Khardah (West Bengal), CI spun pipes at its facility in Elavur (Tamil Nadu) and low ash metallurgical coke (“LAMC”) (an important intermediate product used in the production of liquid metal/pig iron) at its facility in Haldia (West Bengal). The Company has recently increased production capacity at its Khardah plant from 200,000 tons per

annum (“TPA”) to 250,000 TPA and is also planning to implement various other “backward integration” measures at its various units. The Company supplies DI spun pipes and DI fittings both domestically and internationally, mainly in South East Asia, South Asia, the Middle East, Africa and Europe. The Company produces CI spun pipes for the domestic market only. The Company is also involved in the execution of turnkey projects as an engineering, procurement and construction (“EPC”) contractor for water and sewerage infrastructure projects, including sourcing, treatment and distribution.

During 2005, the company had raised USD 40 million through the issue of Global Depositary Receipts and during 2006 the company issued Zero Coupon Convertible Bonds of USD 75 million. For the financial year ended 31st March 2009, the Group had net sales of Rs.1947.23 Crores as compared with Rs.1439.39 Crores for the financial year ended 31st March 2008. The Group’s EBITDA (Earnings before Interest Tax Depreciation & Amortization for the year ended 31st March 2009 was Rs. 349.27 Crores as compared with Rs.180.68 Crores for the financial year ended 31st March 2008. . The Group had net profit for the financial year ended 31 March 2009 of Rs.135.32 Crores as compared with Rs.55.34 Crores for the financial year ended 31st March 2008.

The Product: Ductile Iron Spun (DI) Pipes

Ductile Iron Spun Pipes (also known as spheroidal graphite iron or Nodular Cast Iron) was invented in 1949.Ductile Iron retains the corrosion resistance of Cast Iron but has more than doubled the tensile strength [Cast Iron 180 Mpa (min), Ductile Iron -420 Mpa (min)]. Due to its excellent improvement of properties over Cast Iron, within decade the entire ferrous foundry industry changed their process to produce pipes, machine elements, equipments and components from cast Iron to Ductile Iron .Americans were the first to withdraw standards on Cast Iron pipes in 1965.The ISO and BS standards for cast Iron Pipes [ISO 13 &BS 4622] have also been withdrawn as cast iron became obsolete.

DN mm

External Dia. DE Iron thickness ‘e’ for K9.

Minimum Works test Pressure Bars

Internal Pressure Rating

Nominal mm

Tolerance mm

Nominal mm

Tolerance mm

PFA Max. Bars

PMA Max. Bars

PEA Max. Bars

80 98 +1 to –2.2 6.00 -1.3 50 64 77 96

100 118 +1 to –2.8 6.00 -1.3 50 64 77 96

150 170 +1 to –2.9 6.00 -1.5 50 64 77 96

200 222 +1 to – 3.0 6.30 -1.5 50 62 74 79

250 274 +1 to –3.1 6.80 -1.6 50 54 65 70

300 326 +1 to –3.3 7.20 -1.6 50 49 59 64

350 378 +1 to – 3.4 7.70 -1.7 40 45 54 59

400 429 +1 to – 3.5 8.10 -1.7 40 42 51 56

450 480 +1 to – 3.6 8.60 -1.8 40 40 48 53

500 532 +1 to –3.8 9.00 -1.8 40 38 46 51

600 635 +1 to –4.0 9.90 -1.9 40 36 43 48

700 738 +1 to –4.3 10.80 -2 32 34 41 76

800 842 +1 to –4.5 11.70 -2.1 32 32 38 43

900 945 +1 to –4.8 12.60 -2.2 32 31 37 42

1000 1048 +1 to –5.0 13.50 -2.3 32 30 36 41

1100 1152 +1 to -6.0 14.40 2.4 25 29 35 40

Product Dimensions

The difference between Cast Iron and Ductile Iron lies in the shape of Graphite in the microstructure of the metal. In Cast Iron the Graphite is present in plate like flakes which makes Cast Iron brittle. But in Ductile Iron, the shape of Graphite becomes a Spheroidal nodule; hence

there is continuity of iron matrix which increases tensile strength and makes Ductile Iron sturdy and shock proof.

Properties of Ductile Iron Pipes

Properties Ductile Iron Spun PipesTensile Strength 420 Mpa[min]Elongation 10%Thermal Expansion Coefficient 11*{10^-6 per degree c}Elasticity 1.7*{10^10 kg/m^2}Hardness 230 BHNDensity 7050 {kg/m^3}Beam Strength >200 MPaBursting Strength- Factor of Safety 8 to 10

Composition of 1 metric ton of Ductile Iron Pipe -

1. Pig Iron 2.Non alloy steel melting Scrap 3. Ferro Silicon 4.Pure Magnesium 5.Hard Coke 6.Light Diesel Oil 7.Cement.

Product Applications

DI Pipes are extensively used for the following Purposes:

Raw and clear water transmission (Pumping and Gravity Main). Distribution network of Potable water. Water Supply for industrial process plant application. Ash slurry Handling & Disposal system. Fire Fighting System. Sewerage and waste water force main. Storm water Drainage piping. Piping work inside water and sewerage treatment plants. Vertical connection to utilities and reservoirs. Piling for ground stabilization. Protective Piping under major carriage ways.

External and Internal Protection

Internal Protection – Generally all Pipes are supplied with centrifugally applied cement mortar lining .Fittings are supplied with manually applied cement lining. The mortar of the lining is composed of cement, sand and water. The mortar Contains by mass minimum one part

of cement to 3.5 parts of sand. The cement mortar lining helps in reducing frictional head loss and pumping cost, protects the pipe wall against corrosion by the alkaline reaction of cement. Sometimes prescribed by the customer, the cement mortar lining is given a seal coat of asphaltic material known as Epoxy Seal Coat over cement Lining. This lining Process is approved by DWI regulations in United Kingdom.

External Protection

a. Zinc Alloy Coating-The Zinc alloy coating consist of a metallic zinc/zinc alloy layer applied by metallization on the pipe surface .It is covered by a finishing layer of a bituminous product or synthetic resin compatible with zinc.

b. Fusion Bonded Epoxy Coating- It is a new addition in Product range of the company. This inert coating in attractive colour is suited for aggressive soil condition.

c. Polyethylene Sleeving- Polyethylene encasement is found to be very effective in corrosive environments and is widely practiced in USA, Europe and Australia instead of Zinc Coating.

d. Black Bitumen Coating-Black Bitumen Coating is used in regions where the iron is prone to rusting for prevention purposes.

Engineering Approach

Value Analysis – Refers to also as Value Engineering which is done for DI Pipes by a cross functional department where representatives from different departments meet together to coordinate their planning regarding technicalities involved in the DI Pipe manufacturing, finance and marketing the same depending upon customer acceptance and preferences. The review programmes are discussed in official meetings held once in a month across different departments. It is done to eliminate unnecessary costs, keep abreast with current trend and technologies and to find out better ways of manufacturing the DI Pipes.

Customers or Organizational Buyers of DI PipesThe various domestic customers of DI Pipes are namely:

Public Health & Engineering Department(PHED) Local Government Agencies Municipalities. Panchayats. Development Authorities like Haldia Development Authorities (HDA), Kolkata

Municipal Development Authorities (KMDA). Railways. Real Estate Agencies. National Highways Authorities of India (NHAI). Ordinance Factories. Port Trust. Airport Authorities. Dealer, Distributor and Agencies.

Demand Related Issues

As in the case of industrial products the demand for Ductile Iron Spun Pipes (DI) Pipes is derived demand, i.e. the demand is dependent on the direct demand for final products, in this case infrastructural development.

Factors affecting Industrial Demand:

Business Condition of Customer: Industrial Customers decide their inventory holding policy based on condition and nature of business and anticipation of future business.

Condition of Economy: With fluctuations in the country’s macroeconomic scenario, infrastructural development also varies. Sometimes due to paucity of funds, political, legal or environmental factors various Government development projects come to a halt. This affects the demand for DI pipes and manufacturing facilities are shut down or number of shifts are reduced.

Financial Condition of Customer: During unfavorable conditions little effort is made towards manufacturing the DI Pipes which requires huge capital expenditure, when the condition becomes stable the purchase starts emerging.

The demand for DI Pipes is elastic in nature, i.e. the demand is inversely proportional to the price changes in the economy.

Demand Forecasting: The demand for DI Pipes is predicted by analyzing the previous years’ sales and the corresponding growth rate in production across years. Market surveys are also conducted to assess based on Business Intelligence, the company also keeps an eye over the opportunities for manufacturing the DI Pipes both in the domestic and Global demand across countries.

Bull Whip Effect-As the DI Pipes are also industrial goods and the demand projection is quite uncertain therefore there arises the problem of varied magnification of demand across the value chain starting from final supplier till to the manufacturer .

Controlling Bull Whip Effect- Rationing: Fixing up a price ceiling and a Price Floor below and above

which the company cannot fix up the Price of DI Pipes.

Adoption of a Proper Prediction Model: The model prediction is done only after proper analyzing the demand of the DI Pipes.

Order Batching: Placement of orders by each member in the supply chain based upon inventory control system. The periodicity of placing the order may be weekly, monthly, semi annually based on transport cost, time, periodic orders, and cost of order processing.

Improved Communication: Improved communication between suppliers and the firm helps reduce the Bull Whip effect.

Buying Procedure

Need Recognition – The Purchasing process initiates with recognition of the need of the raw materials for manufacturing of DI Pipes .The need is common to different departments of the firms coordinating altogether to meet the specifications of the industrial Product.

Product Characteristics: After recognizing the need the user department and the procurement department should decide upon the quantity required, quality levels, features it should have, technical specifications.

Searching for Potential Suppliers: At this stage the Purchase department starts searching for various potential suppliers in the market. Sometimes a firm used the techniques for purchasing the raw materials directly from the supplier who have registered with them .Also the firm can adopt the technique of searching for new supplier depending upon various cost benefit analysis.

Analyzing Proposals- The Proposals of the qualified supplier is taken into account after they have submitted their quotation based on Price, delivery, time, payment terms etc .If the company feels that the proposal is not sound enough then they call it for revision purposes. The revised Proposals are then again sent back to the firms after proper screening.

Making the Purchase Decision: After screening out all the alternatives the company chooses the most competitive bidder meeting all the aforesaid qualifications. Sometimes multiple bidders can also be given the contract. The supplier weightage is also considered whom they have delivered service previously, reputation of the supplier.

Selection of Order Routine- Refers to the actual Physical Exchange that are going to be happen as per contractual agreement .Perhaps the most important technique adopted in the case are frequency of Delivery, Maintenance of Inventory levels, quantity to be purchased etc .

Evaluating Vendor Performance and Vendor Rating-The Company evaluates the Vendor’s Performance based on parameters like efficiency and effectiveness in service delivery, supplying right materials to right persons at an appropriate time. Timely information about forthcoming DI Pipes requirements, after sale services, Overall knowledge of Import Export Clearance Procedure, Commercial Rate Agreement, timely availability of Container, ability to handle our type of cargo etc. Rating is also done for each vendor by allocating points or rankings for each defined parameters.

Nature of involvement of Various Departments from procurement till final dispatch

The firm generates revenues from domestic sales and export of DI pipes mainly to Singapore and the Middle East. It procures raw materials from local and global suppliers as and when the need arises. Moulds are procured from USA, and China, bitumen powder from Germany, epoxy cement from UK, high aluminum refractory cement from France, zinc wire from Germany and Finland, and coke, dolomite, limestone, iron ore, pig iron from Orissa and Jharkhand. The onus of procurement lies with the Materials department. The firm has a designated list of vendors from whom the purchases are made in case of straight re-buys. The samples of raw materials are inspected on quality parameters by the Inspection Department before the purchase is made. The Materials Department together with the Finance Department fix up a budget for procurement. The raw materials then go into production, which is handled by the Production Department. Post production Post production the DI pipes are inspected to ascertain whether quality standards have been met. The Dispatch and Export Department is entrusted with the task of dispatching the finished goods at an appropriate time to a proper place of dispatch with minimum cost. The Export Department is also responsible for building contacts with the foreign global agencies to fix up contractual agreement with them, for the purpose of selling overseas.

Managing Buyer Supplier Relationship

As far the buyer seller relationship is concerned there is greater amount of interdependence among the different departments involved, increased information sharing, and adaption in the operational aspects. This methodology is adopted by the company, since in a B2B environment the focus is on customer satisfaction through customized value propositions rather than mass production. The company follows the practice of importing spare parts from different parts of the globe. Samples are brought from abroad and tested by the Inspection Department for quality. Pouring troughs –Moulds are brought in from USA, and China. Runners are brought in from Germany. After procurement, the materials are sent to laboratories for chemical analysis, the company increases order size after success is accomplished. The company follows the norms of Director General of Supply and Distribution (DGSD). For bringing the sample for testing the quality of raw material used up in manufacturing purposes, both local as well as global sample is borne; no cost has to be borne for local sample but significant amount is spent by the company in bringing the global sample from the best supplier available globally. The supplier with whom the company has worked for a long time ,gets the order as a friendly relationship is developed for which the supplier brings the best raw material available for DI Pipes production at a reduced cost, and of substantial quality standard. The company has its representatives in the Singapore, the USA and Dubai, UAE to handle the overseas markets. Trading units are being opened up in Dubai to control the entire South Asian market. Electro steel has also entered into a non exclusive agreement for the finished products in Singapore. Adaptations are made keeping in mind sentiments of the local people. For example, Islamic countries the DI Pipes are mainly green in colour. The company also merges with local government to carry forward their activities in different parts across the globe. The company also takes help of local dealers who have the ability to reach each customer and can serve as a source of market intelligence.

Market Intelligence

It is a process of getting continuous daily information that assists managers to make effective decision making of their organization. The DI Pipes manufacturer is also no different from others. The Company also has a development department that is entrusted with the duty of Marketing Intelligence. Moreover the marketing manager get himself involved in preparing marketing plans, preparing and executing advertising strategies. Customer relationship management strategies are decided on a quarterly basis in alignment with the R&D department of the company.

The company is able to undertake MI by gathering, analyzing data collected from sources like:

Industrial Customers. Dealer, Distributors and agents. Suppliers. In House Market Research. Trade Journals.

The company also maintains excellent and sound relationships with the suppliers and distributors and builds up long term contractual relationship with the suppliers, dealers.

The Company tries to overcome the shortcomings /deficiencies which arise due to certain wrong assumptions like:

Analysis of Past Sales Trend by creation of a proper prediction model to determine the potential demand for DI Pipes in the market and then make projection for sales in this quarter.

Information bias is controlled by properly motivating the sales force, customer’s incentives and by making the suppliers, distributors the future channel partners of the company.

High cost is removed by understanding the necessary wastages knowing what is presently a necessity, planning to embark on backward integration by purchasing license for building up Infrastructure, Shipping lines, Logistics, Warehouse thereby eliminating the presence of middlemen.

Tasks Performed by the Market Research Team

Market Share Analysis-The Company has Market Research department whose job is to determine the total sales of the company relative to the total sales of the DI Pipe industry. The process is performed on a daily basis depending upon business intelligence system as

the market share of the company is dynamic by nature. The Export department also plays an important part in finding out the requirement of DI pipes in world market and the global demand in order to sustain fierce competition from exporters and domestic players of importing country.

Market Potential Assessment-The company also undertakes continuous assessment of the market potential to predict the future opportunities and there by devise its market development and expansion strategies.

Sales Analysis & Forecasting - The company gets its revenue by the sale of Cast Iron Pipes (CI) Pipes in the domestic market and Ductile Iron Pipes (DI) Pipes both in the domestic and in the global market. Therefore the Market Research Department of the firm conducts an monthly basis the sales analysis of each of these products to predict the future sales growth, customers who have purchased the Pipes and fittings, turnkey projects, agent who have conducted the sales activities on behalf of the customer etc.

Demand Analysis- This is done by the Market Research Department to predict future demand of DI pipes in the domestic and global market .In analyzing the potential demand of DI Pipes in future the probable substitutes availability, price ,financial condition of the buyer, economic situation both domestic and globally is considered.

Segmenting, Targeting & Positioning

Segmentation

The company segment its markets based on geographic location and adopts a need based segmentation strategy. Apart from the domestic market in India the company focuses on the European Union (EU), the Middle East, Brazil. Firstly a situational analysis of the country or geographic region is carried out. Since the major buyer is usually the government of the country the political, economic and financial stability of the country is ascertained.

Targeting

In order to target specific market segments the company undertakes the following analyses:

1. Entry and trade barriers.2. Demand Analysis3. Competitor Analysis4. Market Growth and Market Share

After this the approval process, product modifications to meet technical requirements of the country and business opportunities arising out of line of credits are taken into account in order to make a final selection of the markets to be served.

Positioning

The company has different products and product variants customized in order to serve the target markets it wishes to serve.

Products are broadly classified on the bases of the jointing system and coating and linings of the pipes.

Product classification as per jointing system:

a. Cushion typeb. Mechanical Jointc. Restrained Jointd. Flange Joint

Product classification as per external coating:

a. Black bitumen Coating

b. Aluminum Pigmented Black Coatingc. Liquid Epoxy Coatingd. Polyurethane Coatinge. Zinc-Aluminum Coating f. PE Tape Wrapping

Product classification as per thickness of tapes:

a. K9b. K7c. C40d. C25e. C30

Different products are offered for different geographies. European Union Blue Epoxy, PU coated pipes are developed for the European Union, Red Epoxy is used in South Asia as per the (BIS) standard norms specified. In the USA product have to meet specifications as per the American Water Works Association (AWWA) while BSI standards are to be met in the UK. In the Middle East Black Bitumen Coated K9 pipes are used due to the corrosiveness of the soil. Green colored pipes are marketed in Islamic countries like Saudi Arabia since the color has a religious connotation.

Differentiation

If we consider the nature of the product, the company produces DI pipes which are similar to

ones produced by domestic companies as well as global companies.

The variation comes only in the application of the product. DI pipes are used mainly for

sewerage treatment and access to safe and pure drinking water. This has been a major issue in a

country like India.

The application of the product also varies across the geographical boundaries of the different

nations like the same pipe which is used for drinking pure water in France; it is used in India for

sewerage purposes.

The company also has got a unique selling proposition to march ahead of time. The company

offers unique offerings like best quality, superior technology, and also provides them to the final

customers at the right time to create lifetime value proposition for its customers. It also organizes

periodical seminars and conferences where in the existing customers are invited to know about

their discrepancies being faced, their benefits and satisfaction derived out of the usage of the DI

pipes. The company believes in converting potential customers into business clients. The

company also enters into long term and smooth relationship with the existing suppliers to

collaborate and bring out the best product available in the market which in turn help the company

to offer the best quality to the customer at an affordable price. The company also believes in not

going with the lowest quoted supplier but with the supplier who has stayed therein for a whole

lot of about 5 years minimum ,understand the work culture of the organization, technicalities

involved in the product being marketed, and who can generate new innovations of the same

product in the form of service applications that can help in tapping the untapped market and

increase market share of the same product.

Trade Barriers

The main trade barriers of the company for the domestic market are ministerial approval and ISO 9001 Certificate.

In the global market the products have to meet stringent specifications which are country specific. This becomes more relevant when pipes are used for transportation of drinking water in order to ensure safety. To market products in such a regulatory environment the manufacturer has to ensure that the raw materials procured meet the quality norms. Government Surveillance Audits are required in various countries. Before a new contract is signed, delegations from the government agencies usually visit the factory in order to make sure that production processes are in adherence with the standards. Samples are subjected to quality checks.

Countries like USA, Japan, and Korea which have technical expertise in pipe making over European and Asian pipe manufacturing companies pose a threat to Electrosteel. In Japan jointing systems in use are technically advanced and are protected by patents and due to protectionist policies of the Japanese Government foreign companies are not allowed to enter the Japanese market either on their own or through joint ventures.

Inventory Control and Management

Carrying Cost = Rs 4000 for 9 Tones of material (Kolkata Port to warehouse at Khardah) carried in a truck.

Rs 12000 for 9 Tones of material (Haldia Port to warehouse at Khardah) carried in a truck.

Ordering Cost = Based on price per tonne of material used in 1 MT of DI Pipes.- (see page -7)

Lead time – 45 days.

Consumption Capacity – 50 tones per month.

Maximum Quantity – 150 tones per month.

Reorder Quantity – 100 tones.

Find out EOQ.(Equilibrium Order Quantity)

Calculation is done based on two factors:

Market volatility – (Based on rise and fall in price of raw materials in global market in the nearby future).

Life Cycle of the product.

Everyday stock prices are provided by the factory and then the order are placed based on the batch size requirement, frequency of use, order already placed with the international counterparts like UK,USA ,Spain, Algeria, Sri Lanka ,Qatar, Abu Dhabi, for export purposes.

Sometimes stock are also kept in hand per day as a buffer to meet the increase in export requirement from different customers worldwide.

Programmes sometime can also be cancelled if the need is not present as on a particular day for export purposes.

Sometimes the materials are also diverted in case of necessity.

Daily stock figures are taken as per delivery specifications.

Calculation of Ordering Cost of Material used in making 1 MT of DI pipe

COMPOSITION OF DI PIPES AND COST OF EACH INGREDIENTS REQUIRED

PRODUCTS QTY IN 1 MT LANDED COST in 1MT

Pig Iron 0.96 MT 21.12

Ferro Silicon 50 KGS 13.042950413838

Magnesium Ingot 3 KGS 0.234741000371835

Cement 91.8 KGS 124842.898991497

PS2 Blacking Powder 0.5 KG 0.0139429993029566

Zinc Wire 7.6 KG 310658.766917967

Bitumen Solution 5.6 ltrs 6195.1074

Inoculants 2.5 KGS 0.040707499647234

Landed cost is calculated by considering the amount of expenditure incurred divided by the quantity of material used as a percentage of quantity of material contained in 1 MT of DI pipe (Ordering cost)

Distribution Channels

The distribution channel chosen by Electrosteel depends on the market it wishes to serve and the volume of the products traded. There are three distribution channels that the company opts for. These are:

a. Direct: From Elecdtrosteel to the buyer. Traded volumes are low and mostly used within India.

b. Indirect: From Electrosteel to agent overseas, and then to the buyer. Volumes traded are low.

c. Indirect: From Electrosteel to subsidiaries or distribution points located overseas, and then to the buyer. High volumes are usually traded.

The company generally follows the route for exporting the finished product to the international counterparts based on opening up of subsidiaries/distribution point overseas located in places like Algeria. Spain, UK, Singapore, France etc who are assigned the task of coordinating with the local buyers on a contractual basis. The subsidiaries are generally given an incentive /commission based on their performance with respect to volume of finished product sold. This are mainly done as the company feels that the regional subsidiaries are better equipped to gather information and have knowledge over the preferences and needs of the domestic buyers .Highest margin are achieved in this route ;almost 70% of the revenue is achieved by the company in terms of export .Local agents also has got significant amount of technical expertise based on the product requirement in their place of domicile and they are invited once in a quarter in the factory to teach the production and R & D department people relating to the better improved ways of producing the product to improve quality ,and reduce cost.

For domestic purpose (within the country) company has gone for direct contact with the buyers without using any middlemen like local agents /dealers because they feel that this will unnecessarily escalate cost. Margin obtained in this route is also quite low as compared to exports. The finished product is dispatched via sea directly from the Kolkata port to reach the convenient place in required time. Volume of product sold is not much within the country; only 30% of the finished product produced is sold in the domestic market.

In countries like Middle East, and Gulf region the company follows the route of contacting the customer with the agents but this route is availed very frequently and even the margins is also not so high.

The company thus follows the distribution channels based on the amount of revenue it generates and based on the volume of product required to dispatch.

Pricing Methodology

In the domestic market the pricing methodology which is followed by the company is based entirely on the market growth and forces of demand and supply that drive the market. All works commissioned by government agencies in India are awarded through a competitive bidding process. The company continuously monitors tenders floated by various government agencies. Depending on the scope of work the company decides on the costing of the bid. The government agency reviews bids placed by the various companies and the contract is handed over to the lowest bidder, given that other qualification requirements are met.

In the global market pricing decisions are taken by what subsidiaries that have been setup in different parts of the world like Algeria, USA, UK, Middle East, and Africa. The different subsidiaries of the company are :

Electrosteel UK Ltd (100%)

Electrosteel Algeria SPA (100%)

Electrosteel USA (100%)

Top level management generally fixes the ceiling price, beyond which the prices cannot be offered. The upper limit is referred to as the Price ceiling as well as a lower limit is also fixed which is termed as Price Floor. The prices of DI spun pipes vary across geographical locations based on country specific terms. As far as the distributors and suppliers of raw materials are concerned an advance is generally taken in the form of credit or bank guarantee against which the orders are placed for raw materials like bitumen powder, epoxy black paint, cement, pig iron coke and black coal etc.

Competitive Scenario

Earlier, when CI pipes was the major product, SAIL, Burnpur was the major competitor. At present prominent competitors manufacturing DI pipes are:

Tata Metallics Kubota Pipes Ltd. Jai Balaji Group Electrotherm Jindal SAW Limited (JSW)

The major global competitors are:

Kurimoto, Japan Kubota, Japan SADIP, Saudia Arabia Saint Gobain, France Tyco Australia CNBM International Corporation, China, HK Sunkfa Group Limited, China Sigma Commercial Products, UK

New Product Development

The company earlier used to manufacture Cast Iron Pipes (CI Pipes) but as the market for these

pipes has declined considerably; there emerged the need for light pipes; mainly the DI pipes

which used to be light and to reduce the cost of its product the company went in for producing

the DI pipes to be dispatched worldwide as well as for meeting the domestic necessities. Now the

company generally is manufacturing DI pipes in bulk requirement over the last 15 years to meet

the huge global demand. The DI pipes were first manufactured in the year 1996. The company

has only changed the service application by going in for backward integration mainly through

acquiring of Warehouse, turnkey projects, purchase of mines for producing in house dolomites;

coal etc to bring down cost to a great extent.

The DI pipes are now being manufactured with new lining and coating to suit to the needs of the

global customers. Continuous market research is being conducted by the marketing team to tap

the untapped market, increase the global demand for its products, by bringing in sample from

abroad and testing them in the laboratories, and producing the products according to

specifications. The global demand is triggered by raw material testing and through tender

documents floated from the international markets.

Glass reinforced plastic (GRP) pipes is one of the new products on the anvil. GRP is an immensely versatile material which combines lightweight with inherent strength to provide a weather resistant finish. The major applications are:

Firewater systems Cooling water systems Drinking water systems Waste water systems/Sewage systems Gas systems

.

Current Stage of Product Life Cycle (PLC)

The product is presently in its maturity stage, and in order to enhance the longevity of the product, modifications like development of different kinds of external coatings and linings are being undertaken.

Promotional Strategy

In domestic market the promotional tool applied by the company is based on closed tender that is

floated to get the order. The company also keeps an eye over the tender quoted by their domestic

competitors and revises them accordingly to get the final order which is mainly done by their

marketing team, distributors etc. Based on tender documents; the customer feedback is taken and

it is based on reverse bidding policy. There are mainly two types of bidding applied namely

Commercial bidding based on price and Technical bidding based on technical expertise.

In the global market the company involves itself actively in public relations campaigns which is

done by the use of catalogue, test certificate, to specify the quality and degree of customization

of the products according to the standards enforced by the international organizations like ISO

9001 certifications, AWWA (America),BSI(UK),EN (Europe).Factory certifications are also

taken into consideration regarding the quality raw materials used, machineries and engineering

equipments used for production purpose and proper quality checks are imposed to meet

international standards and compete effectively in the global market.

Use of E-Commerce

In an era of globalization and such stiff competition, the company is also actively using the Web

based technology wherein the customers get the benefit of obtaining all the desired information

in the official website of the company.

Consumers also get an opportunity to bargain over quality and price over Internet. The company

also is able to gain market share by including accuracy and transparency in their offerings to

specific customers based on their requirements

Thus the company reduces its cost by achieving economies of scale, make Return on market

Investment (ROMI) positive and enhance restrictive free growth in future.

Bibliography

a. Industrial Marketing, The Icfai University Press

b. Industrial Marketing- Analysis Marketing and Control, Reeder R. et al, 2nd Edition, Prentice Hall India

c. www.electosteel.comd. www.pipingtech.com