Forecasting Demand for Flat Steel - A Study on A Steel Rolling Mill in India
A Forecasting Demand Dilemma
It was a cold winter morning in the first week of January 2016 in Chandigarh, Punjab, India. Shivam Goyal (Goyal), the partner of Singla Steel and Allied Industries in Punjab, was anxiously awaiting in his office to meet Virat Saxena (Saxena), a leading consultant in the Indian steel industry whom he had met at a conference in Delhi. He had invited Saxena to his company.
Goyal established his manufacturing company about 30 years ago and in the recent years had encountered wide fluctuations in the demand for his flat steel roll products. As a result, it was almost impossible for him to plan and operate efficiently and profitably. He had briefly shared his concerns with Saxena who had promised to help him. His senior management team had prepared a presentation for Saxena, based on its experience over the last few years, the conclusion of which was that
nothing could be done to improve the situation.................
An Overview of the Steel Industry in India
The steel sector was a major contributor to India’s manufacturing output. The Indian steel industry was highly modernized and further strived for modernization by upgrading older plants.
In India, the demand for steel had grown in recent years (Exhibit I). The rapid growth in the industrial sector and rising infra expenditure projects in railways, roads and highways, etc., have increased the demand for steel in India.
While India was a net exporter of steel in 2014, in 2015, the country had imported 9.3 million tonnes of steel, and its exports declined to 5.6million tonnes. Steel imports grew at a rate of 9% per annum from 2011–2015..............
A Company Overview: Singla Steel and Allied Industries
Singla Steel and Allied Industries was established in 1982 and was based in Mandi Gobindgarh, Punjab, India. The manufacturing plant was a hot rolling mill that dealt in the conversion of mild steel ingots to flat steel, ranging in size from 40 x 10 mm to 100 x 25 mm........
The Manufacturing Process at the end-to-end Rolling Mill
Steel products were broadly categorized as either flat or long. Slabs were used to roll flat products, such as sheets and coils, whereas billets, ingots, and steel blooms were used to roll long products.
The semi-finished products were transported to the rolling mill from the induction furnace. The ingot was manufactured from the steel scrap that was either imported from abroad or purchased from the local scrap dealer. The semi-finished products were heated in a reheating furnace until they reached a temperature of 1,200° C. These were then passed through a rough rolling machine (stand), which squeezed the ingot into flat bars.....................
Factors that had an Impact on the Company’s Profit Margin
Economic Conditions
The market in which the re-rolling companies operated was highly volatile. The demand fluctuated in direct accordance with price fluctuations.........
Location and Constraints
Mandi Gobindgarh was the oldest steel hubs in India, established in 1930. There were 500 medium- and small-sized steel and iron scrap recycling industries in India. Mandi Gobindgarh had the largest secondary steel producing manufacturers.........
Electricity Costs
The cost of electricity, a major input for steel rolling mills, was very high in Punjab compared to that in neighboring states.......
Competition in the Rolling of Steel Bars
As a result of the lack of political and administrative support in Punjab, and intense competition, steel rolling mills owners had reduced their margins to the bare minimum in order to cover the cost of interest on their investments; making them unviable..............
A Solution to the Demand Forecasting Dilemma
On evaluation of the data provided by the senior management of Singla Steel and Allied Industries (Exhibit II), Goyal noticed that the demand for steel bars for the company derived primarily from units that manufacture agricultural implements in Punjab..........
Assignment Questions
I. Elaborate the importance of demand forecasting for Singla Steel and Allied Industries.
II. Plot the data on a graph paper and find out if there are any trends or seasonality in demand data for Singla Steel and Allied Industries. Discuss your findings.
III.............................
Exhibits
Exhibit I: Annual demand for Steel Industry in India
Exhibit II: The Monthly Demand for Steel Bars at Singla Steel and Allied Industries