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Procurement Transformation – Lessons from the Pandemic

Naveen Ahlawat, Vice President & Lead Group Procurement at Jindal Steel & Power Ltd.
May 5, 2021

Girish VS, from ISCM, speaks to Naveen Ahlawat, Vice President & Lead Group Procurement at Jindal Steel & Power Ltd.

Procurement performs a vital and diverse role in ensuring smooth production. However, post pandemic, organizations expect major changes in their procurement function. Transforming procurement function is a large undertaking, but it can result in significant improvements in compliance, speed, cost, and quality. Girish V S, Director ISCM, spoke to Naveen Ahlawat, Vice President & Lead Group Procurement at Jindal Steel & Power Ltd. on the transformation journey at Jindal Steel & Power Ltd.

What was the challenges you faced as the pandemic stuck?

COVID – 19 pandemic has emerged as one of the major crisis that world is facing right now. This pandemic has spread its wings in almost all the countries in the world. People are terrified & petrified. Affected Countries have put lock down in places in order to break the chain of this pandemic. Economy of most of the countries has gone for a toss.

The first challenge was to run the plant smoothly. There was a delay in supply of materials – It is very important to understand the concept of Full-Kit, which Theory of Constraints (TOC) has taught us – we cannot accomplish what we intend to, unless all the items required by our plant are available in the quantities we want and as per the quality specifications that we desire. Hence non-availability of any one item can become a show-stopper to our business plans. The shortage of manpower and movement restrictions have cumulatively resulted in delay of material supply.

The second challenge was to meet the requirement of the plant. The entire supply chain was disrupted. Most of our suppliers were running the plant at 30 to 40% capacity. We instituted a number of measures – like regular vendor meetings throughout the pandemic. A second factor that helped was Vendor Managed Inventory – because of this we did not face any challenge. We motivated our suppliers to open warehouses near our plants. And most of them did. This helped us a lot. This reduced the distance travelled for our in-bound supply chain from 500 KM to just around 100 KM. This helped improve our visibility – we could monitor when the truck was loaded and when it will reach our plant. This helped us keep just the minimum inventory at our plants. In addition, we helped our suppliers with the necessary permits for movement of materials. In addition, we released all pending payments of all our supplier partners. This motivated them.

Unavailability of workmen due to lockdown at our Supplier’s end created a major disruption in the supply chain from a product manufacturing standpoint. We deputed personnel, tools and other supplies from our factory to these suppliers to ensure they could continue to produce and meet their obligations.

Another major fallout of the pandemic was the way we operated – we moved from competition to coopetition – we were in touch with our competition supply chain heads and helped each other with essential materials. For example, we helped Sail with some critical items they were looking for by sharing details of where they could get it.

What measures did you take to Reduce the impact on supply chains

To mitigate the impact of pandemic, several steps were undertaken to ensure that business run smoothly and effectively:

Recalibrating Inventory level commodity wise to mitigate risk – We quickly assessed our inventories and identified the Supplier side entities where we were more vulnerable; and swung into action to book most of their inventories. Similarly, we identified geographies (globally), where the consumption of steel was still happening and increased our steel exports by more than 6 times than normal times.

Strong Logistical tie ups – The logistical movements of critical stocks are monitored & tracked through rigorous mechanism and wherever delay is envisaged, alternate options were explored, and corrective actions were taken. The drivers/helpers were provided with adequate safety measures along with food facilities at start and end points so that they can work round the clock. Strong tie ups were established through regular discussion with transporters and proactively sorting out issues on regular basis. In worst case scenario, when few drivers left their vehicles at the roadside then we arranged for alternate drivers from our plant to take the vehicle to the destination. Trucks were traced with the help of local authorities, Collector, Police.

Frequent digital interactions – The pandemic has left us with no choice but to interact with suppliers, plant execution team and other key stakeholders digitally. This mode of communication has ensured that we are being socially responsible by following all the government issued guidelines and simultaneously collaborating for effective working.

Boosting Supplier Confidence – In an environment of uncertainty, suppliers were running their plants at minimal level in absence of production orders. We gave assurance about the requirements well in advance and payments were made on time to ensure that the suppliers were motivated to keep the supplies as usual. JSPL ensured that supplier’s payment including any previous one was made to improve supplier’s cash flow.

The pandemic has left us with no choice but to interact with suppliers, plant execution team and other key stakeholders digitally.

Vendor’s manpower was provided with accommodation in the designated housing colonies with physical distancing in place so that they could work without any barriers. In certain cases, wherein the supplier had the material, but their manpower was not available, we arranged it from our side on suppliers’ premises for loading & shifting purposes.

New Vendor Development – In order to improve availability of material, local vendors were developed by taking trial runs/visiting supplier’s facility. Even if the prices were on the higher side, we qualified them during proposal phase. Cost benefit analysis of loss of production vs. increased cost was calculated and accordingly decisions were taken.

How did you ensure Visibility for your supplies?

As the pandemic kicked in, we insisted that our team should visit at least two suppliers a month. We were able to map their supply chains in detail – their costing, their sub-suppliers and so on. For example, we make Steel. An important component is silico manganese. We analyzed that the threat to manganese ore. We know that if manganese ore supply is smooth, we will not face any production challenges.  will be shortage of manganese ore. We did a massive outreach to all global sources of manganese and checked the availability, so that we could proactively ensure adequate supplies, in time.  Similarly for graphite electrodes, we realized that as long as the major international suppliers do not face any problems, our supplies can be smooth. Once we mapped our entire supply chain, it helped us understand the sources of vulnerability to our supplies – deep into the chain. It also helped us optimize our sourcing costs.

How did manage cost Rationalization

The entire decision making was based on TOC. We moved to a lean inventory policy to free up working capital. The second policy was to make decisions based on cash velocity. We decided to buy based on higher cash velocity – even if it meant buying from the L2 or L3 supplier. Combining economic parameters like total cost of ownership and cash velocity, decision making was easy. In the initial days of the pandemic, firms were intent on securing supplies at a higher cost. Logistics cost did shoot up. On one of our routes, the normal charges were INR 1200/-. But we paid INR 2400/- to secure transportation – knowing that we will create a higher value in sales.

During the pandemic, our team members focused on gaining a deeper understanding of the manufacturing process and actively looked for ways to reduce costs in the process

Our efforts were to reduce the complexity of our supply chains. We have started developing local sources for products we were importing – reducing the complexity. We also embarked on an aggressive in-house manufacture of critical components. We have all the factors of production. The pandemic gave us an opportunity to leverage our volumes to modify contracts. For example, we forced our supplier of Ferromolybdenum – one of the most expensive alloys – from Singapore to open a warehouse in India. The lead time for procurement from Singapore used to take 45 to 50 days. Because of this we had a very high inventory levels – around 20 to 25 days. After the warehouse came up in India, we have reduced the inventory to 5-6 days – a huge savings in time and working capital.

What value add did Procurement Function bring to the firm?

The pandemic has brought the focus on procurement and supply chain. During the pandemic, our team members focused on gaining a deeper understanding of the manufacturing process and actively looked for ways to reduce costs in the process. This is a major value addition by our team. We focused our efforts to develop the ecosystem so that we can all become efficient. We changed the means of achieving lower costs from beating down supplier prices, to making them more efficient and thereby gaining cost advantage.

What, according to you is the Future of Procurement?

Transformation of procurement is already under way. The pace will pick up because of the necessity brought about by the pandemic. Some areas  where I see transformation are:

Digitization of Supply Chain – Although many companies have moved to digitalized transactions, there is plenty of scope available in terms of IOT, Machine Learning, Industry 4.0. and the we should explore these opportunities to shift the organization from people based to process/ technology based.

We changed the means of achieving lower costs from beating down supplier prices, to making them more efficient and thereby gaining cost advantage.

Pro-active approach – The organization must adopt a pro-active approach to the changing need of the organization. E.g., reducing geographical dependencies for products, developing suppliers closer to the plant location to eradicate uncertainties in Supply Chain.

Managing a WFH employee – It is the need of the hour to maintain physical distance to curb the spread of the pandemic. The organizations must learn how to interact effectively & meaningfully via digital platforms. Thanks to technology, today, even inspections can be done remotely. We need not visit the premises for inspection.

Employee development – Organizations can arrange trainings on a regular interval to disseminate the ideas and learnings among each other and across sectors. These trainings will have a collaborative approach where each of the participants share their thoughts, growth stories so that every participants stands benefitted.

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