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The steel industry in India is facing multiple challenges that have impacted its growth. Some of the prominent challenges include labour-related problems, power outage issues, lack of technology adoption, environmental concerns among others. There are also challenges specific to supply chain management in the steel sector. This is primarily on challenges related to raw material procurements, storage and warehousing, low-cost transportation of heavy metal, among others.
This article explains the common supply chain problems and challenges in the Indian steel industry.
Supply chain management in the steel industry
During the COVID-19 induced lockdown period, supply chains all over the globe were highly disrupted and the steel industry was not an exception to it. However, as the lockdowns were lifted, mainly supply chain systems have returned to normalcy. For the Indian steel industry, the supply chain still remains disrupted.
In the post-COVID era, demand for steel in construction and infrastructure projects have increased as various development projects around the world have taken speed. In this situation, disrupted supply chains is adversely affecting the supply of steel.
The steel industry is unique. The main raw materials i.e., iron ore and coking coal are bulk materials while the finished product – steel is also a bulk commodity. As a result, procuring, inventory, storing, packaging and transporting have their own set of challenges. Additionally, technology adoption remains another supply chain related issue in the steel industry.
Here are some of the prominent supply chain related challenges that the steel sector in India is facing.
1. Procurement challenges
Amongst many challenges of the steel industry, procurement of raw material tops the list. Although iron ore is available within the country, coking coal needs to be imported mainly from Australia. While iron ore’s availability is not an issue, procuring coking coal is one of the major challenges.
The supply chain of coking coal is highly disrupted due to multiple factors such as political reasons, imposed duties and taxes, and so on. Disrupted supply of coking coal further impacts steel production affecting steel prices. Higher taxes also contribute to price increases for the finished product i.e., steel. This further results in fluctuating steel prices. From a wholesaler’s perspective, procuring steel in the scenario of fluctuating prices becomes difficult.
All the challenges culminate in steel procurement difficulties for manufacturers, wholesalers, retailers and distributors. This naturally makes buying steel at a reasonable rate a challenge for MSMEs in India.
2. Inventory management-related issues
With regard to inventory, one of the key issues faced by the Indian steel industry is the lack of modern inventory management techniques. Lack of inventory visibility leads to either insufficient or overstocking. Although major players in the industry have upgraded to modern inventory management software offering them better control and supply chain visibility, not all steel makers have the same capability and hence it results in loopholes in planning and sourcing.
Another supply chain related challenge for the steel industry is transportation and logistical cost. Steel and its raw material require dedicated equipment for handling during transportation. Most of the steel plants in India are located in landlocked areas. As a result, they do not have easy access to ports. In this situation, the railway is the only economically viable option for transportation.
However, the railway system in India lacks modern infrastructure. This results in delays, damages at times, leading to an increase in cost.
Another challenge is that road transport in India is expensive. Additionally, not all road conditions are safe to carry bulk materials. This questions the safety of the product as well as truck drivers.
Moreover, the transportation of steel and bulk material demands equipment such as weighbridges. In fact, the weighbridge is one of the crucial tools in steel transportation. Breakdown of it may result in downtime and loss.
4. Material handling
As mentioned above, raw materials in the steel making industry and also the finished products are bulk commodities and need to be handled with the help of specific equipment such as cranes, etc. That translates into investing in special material handling equipment. Any steel maker has to invest in proper material handling equipment in the plant.
For example, if steel coils need to be moved, from the plant to the storage area, the plant has to be equipped with lifting gears like bridge crane, etc. Normal material handling equipment like a forklift may not be sufficient for it and can lead to damages and injuries. The impact of not having sufficient material handling equipment is far more severe – apart from injuries, it may cause downtime and impact profit margins.
Additionally, transport and logistics solution providers and facilities also need to be well-equipped to handle these materials.
How to overcome supply chain related challenges?
Although eliminating the above challenges completely may not be possible for MSMEs in the steel industry, there are ways to reduce their impact on the business. Here is what can be done:
- Technology adoption: In order to have better visibility on inventory and demand prediction, it is important to invest in inventory management or ERP software. This will also give you better control over production.
- Right material handling equipment: To avoid accidents, damages and related downtime, you must have the right equipment for handling bulk raw material as well as finished products. Do not look at the price of the equipment but focus on the value that you can derive from it.
- Logistics partner: For safe transportation of finished steel or even other bulk materials, tie up with a reliable 3PL partner. It is extremely important to reduce risk in using 3PL solutions.
- Raw material procurement: Analyse demand, understand market conditions and then procure the raw material you need. It Is important to understand demand fluctuations in the market before procuring raw material.
The steel industry is constantly undergoing various challenges, unstable tax structures, fluctuating raw material prices, etc. However, one can reduce the impact of other challenges by investing in right technology and equipment.