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SAP Variant Configurator @ Essar

A perfect symphony of Metallurgy &Information Technology

September 11, 2012SAP Mining & Metals Forum Mannheim

Suneel AradhyeSr VP and CIO

Essar Steel India Ltd

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Agenda

Indian Steel Industry & Indian Economy Overview of Essar

Business Challenges: Why VC

The VC Model

Value Addition

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Growinginvestments

• 222 MoUs have been signed by various states such as Orissa, Jharkhand,Chhattisgarh, Gujarat, Karnataka for planned capacity of about 276 MT

• Investment in infrastructure, the largest consumer of steel, is expected tobe USD 1 trillion by 2017

Vertical integration

• The major players in the industry, such as Tata Steel and SAIL havevertically integrated to secure raw materials

• Tata Steel is self-sufficient in iron ore and coking coal supply; SAIL is selfsufficient in iron ore

Strategic alliances

• Global players have entered into JVs with Indian steel majors as thegreenfield projects would have longer gestation

• Sumitomo Metal has partnered with Bhushan Steel for technological andmarketing collaboration

• SAIL has entered into a JV with POSCO to have FINEX technology at itsBokaro plant

Entry ofInternationalcompanies

• Attracted by the growth potential of the Indian steel industry, several globalsteel players have been planning to enter the market

• Arcelor Mittal and POSCO have planned mega greenfield projects atvarious locations in India

Indian Steel Industry & Indian Economy

References: RNCOS Report, Media Reports, Ministry of Steel, Press Releases 3

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Robust Demand

• Demand supported bygrowing robust domesticmarket

• Infrastructure, Oil & Gas,and Automotive will drivethe growth of the industry

Competitive advantage

• India is among the top

producers of all forms of steelin the world

• Availability of highly educatedmanpower and presence ofabundant mineral resourcesmake India competitive in theglobal context

Increasing Investments

• Foreign investment of nearlyUSD40 billion committed inthe steel sector in 2010

• Steel producers have signed222 MoUs with state govtsfor capacity addition ofabout 276 MT by 2020

Policy support

• 100% Foreign Directinvestment (FDI) through theautomatic route is allowed inthe sector

• Large infrastructure projects inPublic-Private Partnership(PPP) mode are being formed

2009

Market Size:USD 33 billion

2014E

Market Size:USD 83 billion

AdvantageIndia

2014E – Estimated figure for the year 2014; these estimates are from Data monitor

Advantage India

References: RNCOS Report, Media Reports, Ministry of Steel, Press Releases

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*Revenue as on March 2012 **83.71% promoter shareholding

OIL & GAS2,109 MMBOE reserves

39 MMTPA refining capacity1,400 retail outlets

POWER450 MT coal reserves1,600 MW operational capacityGrowing to 4,500 MW by end of2012 and 9,670 MW by 2014

SHIPPING28 ships. 8 new ships on order13 rigs incl. 1 semisubmersibleFleet of 5,000 chartered trucks

BPO55,000+ Aegis employees50+ locations

REAL ESTATEPortfolio of approx. 16 mn sq. ft.in residential, commercial andmixed use projects

TELECOM SERVICESGSM services in Kenya with 3mn subscribers1,200 branded retail outletsunder The MobileStore in India

PROJECTSValue-engineered EPC SolutionsSpecialized Equipment &Fabrication Facility

PORTS**88 MTPA operational capacity70 MTPA under construction

158 MTPA total capacity

CONCESSIONSUS$ 300 million road concessionfrom NHAI Aims to create a US$ 4 billionportfolio in the next 2-3 years

MINING2 bn tonnes of iron ore reserves

27 MTPA pellet plants210 MT coal reserves

METALS14 MMTPA steel-makingcapacity

5 MMTPA processing anddistribution capacity

375+ branded retail outlets under

Essar Hypermart

Energy Steel Infrastructure Services

3,067 employees 9,161 employees 3,505 employees 61,108 employees

US$ 19.45 bn revenue* US$ 6.24 bn revenue* US$ 2.37 bn revenue* US$ 1.89 bn revenue*

76% 100% 100% 100%

*Aggregate figure eliminates inter group transactions of $ 2.6bn for Mar ‘12

Essar Group – Conglomerate at a Glance

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1: 6 mtpa plant to be commissioned in FY’12 and balance 6 mtpa in FY’132: 4.1 mtpa plant to be commissioned in FY’13, and balance 2.9 mtpa in FY’14

10 mtpa steelmaking capacityat Hazira, Gujarat Iron Making

– 1.7 mtpa Blast Furnace – 6.8 mtpa DRI (6

modules) – 1.7 mtpa Corex (2 units)

Steel Making – 10 mtpa (with both DC

EAF & CONARC)

4 mtpa steelmakingcapacity at Algoma, NOntario, Canada (BlastFurnace)

130 Mn tonnes of iron oreresources

60 Mn tonnes coking coalreserve

20 mtpa Beneficiation andPelletization capacity – 8mtpa in Vizag

– 12mtpa

1

in Paradeep

2 Bn tonnes of iron oreresources in Minnesota,USA

150 Mn tonnes of coalreserves in USA

7 mtpa2 pellet plant in

Minnesota, USA

Extensive flat steel range: – Hot Strip Mill (3.6 mtpa) – CSP (3.5 mtpa) – Cold rolled (1.8 mtpa) – Galvanized (1.0 mtpa) – Color coated (0.4 mtpa) – Plate (1.5 mtpa)

– Pipe (0.6 mtpa)

Flat steel product range: – Hot rolled (3.3 mtpa) – Cold rolled (0.3 mtpa) – Plate (0.5 mtpa)

Flat steel product range inIndonesia – Cold Rolled (0.4 mtpa) – Galvanized (0.15 mtpa)

● Distinct distribution model – OEM & export sales – 4 mtpa across 7

service centers – Over 375 retail outlets

1 mtpa internationalservice center capacity – Indonesia – UK – UAE – Vietnam (Project)

I n d i a

N o r t h A m e r i c a

R O W

Resources Technology Product

Essar Steel: Operations Overview

Essar Steel

Reach

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Essar Steel: Hazira Facilities

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Operations span full value chain from raw materials to product distribution

Beneficiation & Pelletization Steel Production Distribution

Captive pelletproduction at Vizagfacility and Orissa

pellet project

Full range of flat rolled products,including value-added products such as

HRPO, Cold Rolled, Galvanized. ColorCoated, Plate and Pipe

Distinct distribution modelconsisting of Processing and

Distribution Centers andnetwork of Retail Outlets under

the Hypermart brand

Hot Ro lled(10.4 mtpa)

Cold Rolled(2.5 mtpa)

Galvanized(1.15mtpa)

ColorCoated

(0.4mtpa)Gas

Pellet/Sinter

Coke makingPlates

(2.0mtpa)Pipes

(0.6mtpa)

Processing &Distribution

Centers

(5 mtpa)

E n d C u s t

o m e r s

Iron-Making

Steel-Making

(14mtpa)Slab

Iron Ore

Coal

Resources

Iron Ore & coal resources,in addition to long term supplycontracts for raw materials to

facilities in India & Canada

Hypermarts

End to End Vertical Integration

Capturing value through the chain

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Steel Industry Demands from IT

• A mix and match of planning strategies -• Make to-order• Make-to-stock• Planning without final assembly

More than one planning strategy

• Customized products with a choice of multiplecharacteristics (~30 per each product) with increasedcomplexity and specific Customer requirements

Complex Product Variants

• Planning generally is at a short notice• Continuous re-assessment of products and processes

Flexibility demanded in planning

• Coping with highly demanding customer segments like Automotive, Line Pipe and Construction.

Specific Customer Servicerequirements

• Complex Production scheduling with a constant need tooptimize production through a combination of continuousand batch processes.

Complex Production scheduling

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V_HRCF

321 Characteristics

HR COIL

Pre condition&Procedures

Dependencies

PreconditionSelectionConditionProcedures

ActionsConstraints

Standard ProfileQuality ProfileService Centre

ProfileStock Profile

PricingconditionBase Price

Dim Ex PriceGrd Ex PriceMarket Extra

Process Extra

Material BOMHRCFHRCWSLBNWSLBW

Task ListPackingRollingCastingMelting

Procedures &Constraint

Net

Selection

Condition &procedures

SelectionCondition &Procedures

HSM

Caster 1

CSP

HR Coil

Caster 2

Super BOM / Routing

Slabs

7 Products, 1400+ characteristics

(combinations of grade, chemistry,dimensions, tolerances and processinginstructionsFor HR Coil

Tailor product to the Customer needs – VC Concepts and Functionalities

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• Defines all kind of products (Finished goods, WIP…)

• VC helped the Sales person to put together specifications for the Product andensure that the product can be produced from defined specifications

• Product structure in VC represented the entire hierarchy and flow ofproduction for all products forms

• Considered all possible process path used for planning (alternative) andmanufacturing FG product

• Quality profile helped R&D and Quality Assurance to manage Customer’s newrequirements – made for the first time products.

• Scalable model which reduced implementation time for new product buildup,acquisition, brown field and green field project.

SAP-VC Features

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• Drastically reduced master data maintenance on a regular basis (reduced

f rom “ 90000” FG/WIP to “ 90 ”)

• Expert knowledge incorporated into the system to the extent possible

• Standardization of processes and objectivity of decision makingsubsequently less training (Standard VC setup w ith derived technicalinferences)

• Order booking used to be a manual process with multiple documents andat least three departments involved. The process is now extremelysimple and can be completed in 15 minutes max having known

customer needs clearly.

Change Proposed

• Change in the manner in which products are represented in SAP.

• Generic material codes and a set of variant characteristics (specifications)

• Conversion of customer specification into manufacturing instructions

Value Proposition

Challenges

PPC is not reqd to create masters

dai ly!

Produc t ion process mapping thru

BoM and Rout ing is not required

to be do ne as a rout ine.

Knowledge has been systemized

with n ecessary inferenc e cri teria,val idat ions and cons traints which

are prompted w hi le enter ing the

order.

Mfg instru ct ions are passed on to

L-II systems in a seamless

manner.

Value Added…Product Definition

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• Very significant time was invested in development of the VariantConfigurator.

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• Increased visibility of due date and production status across the entireproduction chain, available in one core system

• Real time update of plan based on actual production and inventory level

• Making SAP the core production order creation system ensures authenticdata, such as sales order, inventory status etc. which are readily available tothe planner

Change Proposed

• Order clubbing at melt plan preparation and slit production order preparationis done in SAP.

• Scheduling is done in MES system on the basis of input and out put productcharacteristics as required by individual processes as guided by VC.

Value Proposition

Challenges

• User acceptance of the changes in practice and user interfaces

HRC Planning Dashb oard has

been developed to c ater to the

operat ional schedu l ing need of

150 MT heat comb inat ions across

the Order boo k. Order clubbing

has been a MAJOR ach ievement

wi th sm aller q uant i ty orders

boo ked in the system.

Sli t Planning Dashbo ard has been

developed to complete the f low on

the FG side of order clubbing to

cater to HSM needs for higher

produ ct iv i ty throug h sl i t

combinat ions.

Value Added…Planning Simplified

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Suggestions…

• Involvement of Metallurgists – Major contributors in development ofVC

• Be careful – every mistake can prove “dear”

• R&D efforts need to be considered to be taken up for developmentas new product configuration can be time consuming

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Q&A

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Documents

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