Forecasting Demand for Flat Steel - A Study on A Steel Rolling Mill in India

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

Forecasting Demand for Flat Steel - A Study on A Steel Rolling Mill in India

Synopsis

Singla Steel and Allied Industries (Singla Steel) was established 30 years ago near Chandigarh, Punjab a Northern State of India. The company had been manufacturing steel flats and bars using hot rolling process mainly for agricultural implement sector in Punjab. The average production of flat steel bar was approximately 300 metric tonne (t) per month. According to Shivam Goyal (Goyal), business partner, the demand for flat steel products was volatile. To partly meet the variation in demand the company was keeping a stock of approximately 600 t. Being a highly competitive industry, Goyal wanted to seek an advice from an industry expert to meet the demand efficiently.

Prerequisite Readings

• • N. Balakrishnan, B. Render, and R.M. Stair, “Chapter 11: Forecasting Models,” Managerial Decision Modelling with Spreadsheets, 3rd ed. (Pearson Education Delhi, 2013), 475-525.
• • John E. Hanke and Dean W. Wichern, “Chapter 1, 3, 4 & 5.,” Business Forecasting, 8th ed. (Pearson Education Delhi, 2005), 1-12; 58-210.
• • Gardner, E. S. Jr., “Exponential smoothing: The state of the art,” Journal of Forecasting, Vol. 4, Issue 1 (1985): 1-28, accessed January 10, 2017, http://onlinelibrary.wiley.com/doi/10.1002/for.3980040103/pdf.
• • John C. Vhambers, Satinder K. Mullick, and Donald D. Smith, “How to Choose the Right Forecasting Techniques,” Harvard Business Review, July 1971. Last assessed on November 26, 2016. https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique.
• • William Barnett, “Four Steps to Forecast Total Market Demand,” Harvard Business Review, July 1988. Last accessed on September 10, 2016, https://hbr.org/1988/07/four-steps-to-forecasttotal- market-demand.
• • Cecil Bozarth (2011). “Measuring Forecast Accuracy: Approaches to Forecasting: A Tutorial”, NC State University. Last assessed on Jan 21, 2017. https://scm.ncsu.edu/scm-articles/article/measuring-forecast-accuracy-approaches-to-forecasting-a-tutorial

Learning Objectives

The learning objective of the case are as follows:

• To understand the various components of forecasting demand
• To understand the factors affecting demand behaviour
• To understand the various forecasting methods and to compare the forecasting accuracy of various models

Case Positioning and Setting

The case is designed for the Operations Management course for BBA, MBA or executive MBA students. The course may be intended to be used at the middle-level or end of the course in Demand Forecasting module. Before dealing with this question, it is advised that instructor should have discussed what is forecasting technique, different models available and how the company may select the best possible method. After the discussion in the class the instructor may provide the case to the students and ask them to run different forecasting methods and to come up with the final solution which will provide minimum errors to the company.

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..............