SAP Variant Configurator @ Essar

A perfect symphony of Metallurgy &

Information Technology

September 11, 2012

SAP Mining & Metals Forum Mannheim

Suneel Aradhye
Sr VP and CIO
Essar Steel India Ltd

Agenda

Indian Steel Industry & Indian Economy

Overview of Essar
Business Challenges: Why VC
The VC Model
Value Addition

Indian Steel Industry & Indian Economy

Growing
investments

Vertical integration

Strategic alliances

Entry of
International
companies

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 to
be USD 1 trillion by 2017

The major players in the industry, such as Tata Steel and SAIL have
vertically integrated to secure raw materials
Tata Steel is self-sufficient in iron ore and coking coal supply; SAIL is self
sufficient in iron ore
Global players have entered into JVs with Indian steel majors as the
greenfield projects would have longer gestation
Sumitomo Metal has partnered with Bhushan Steel for technological and
marketing collaboration
SAIL has entered into a JV with POSCO to have FINEX technology at its
Bokaro plant
Attracted by the growth potential of the Indian steel industry, several global
steel players have been planning to enter the market
Arcelor Mittal and POSCO have planned mega greenfield projects at
various locations in India

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

Advantage India
Robust Demand

Demand supported by
growing robust domestic
market

Infrastructure, Oil & Gas,

and Automotive will drive
the growth of the industry

Increasing Investments

2014E

Foreign investment of nearly

USD40 billion committed in
the steel sector in 2010

Market Size:
USD 83 billion

Steel producers have signed

222 MoUs with state govts
for capacity addition of
about 276 MT by 2020

Advantage
India

Policy support

Competitive advantage
India is among the top
producers of all forms of steel
in the world

2009
Market Size:
USD 33 billion

Availability of highly educated

manpower and presence of
abundant mineral resources
make India competitive in the
global context

100% Foreign Direct

investment (FDI) through the
automatic route is allowed in
the sector
Large infrastructure projects in
Public-Private Partnership
(PPP) mode are being formed

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

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

Essar Group Conglomerate at a Glance

76%

100%

Steel

Energy

100%

100%

Infrastructure

Services

OIL & GAS

MINING

PROJECTS

SHIPPING

2,109 MMBOE reserves

39 MMTPA refining capacity
1,400 retail outlets

2 bn tonnes of iron ore reserves

27 MTPA pellet plants
210 MT coal reserves

Value-engineered EPC Solutions

Specialized Equipment &
Fabrication Facility

28 ships. 8 new ships on order

13 rigs incl. 1 semisubmersible
Fleet of 5,000 chartered trucks

METALS

PORTS**

BPO

14 MMTPA steel-making
capacity
5 MMTPA processing and
distribution capacity
375+ branded retail outlets under
Essar Hypermart

88 MTPA operational capacity

70 MTPA under construction

55,000+ Aegis employees

50+ locations

158 MTPA total capacity

REAL ESTATE
Portfolio of approx. 16 mn sq. ft.
in residential, commercial and
mixed use projects

POWER
450 MT coal reserves
1,600 MW operational capacity
Growing to 4,500 MW by end of
2012 and 9,670 MW by 2014

CONCESSIONS
US$ 300 million road concession
from NHAI
Aims to create a US$ 4 billion
portfolio in the next 2-3 years

3,067 employees
US$ 19.45 bn revenue*

9,161 employees
US$ 6.24 bn revenue*

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

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

3,505 employees
US$ 2.37 bn revenue*

TELECOM SERVICES
GSM services in Kenya with 3
mn subscribers
1,200 branded retail outlets
under The MobileStore in India

61,108 employees
US$ 1.89 bn revenue*

Essar Steel: Operations Overview

Resources

Technology

Product

Reach

130 Mn tonnes of iron ore

resources
60 Mn tonnes coking coal
reserve
20 mtpa Beneficiation and
Pelletization capacity
8mtpa in Vizag
12mtpa1 in Paradeep

10 mtpa steelmaking capacity

at 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)

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)

Distinct distribution model

OEM & export sales
4 mtpa across 7
service centers
Over 375 retail outlets

2 Bn tonnes of iron ore

resources in Minnesota,
USA
150 Mn tonnes of coal
reserves in USA
7 mtpa2 pellet plant in
Minnesota, USA

4 mtpa steelmaking
capacity at Algoma, N
Ontario, Canada (Blast
Furnace)

Flat steel product range:

Hot rolled (3.3 mtpa)
Cold rolled (0.3 mtpa)
Plate (0.5 mtpa)

ROW

North America

India

Essar Steel

1: 6 mtpa plant to be commissioned in FY12 and balance 6 mtpa in FY13

2: 4.1 mtpa plant to be commissioned in FY13, and balance 2.9 mtpa in FY14

Flat steel product range in

Indonesia
Cold Rolled (0.4 mtpa)
Galvanized (0.15 mtpa)

1 mtpa international
service center capacity
Indonesia
UK
UAE
Vietnam (Project)

Essar Steel: Hazira Facilities

Capturing value through the chain

End to End Vertical Integration

Hot Rolled
(10.4 mtpa)

Gas

Cold Rolled
(2.5 mtpa)

Galvanized
(1.15mtpa)

Color
Coated
(0.4mtpa)

Processing &
Distribution
Centers

Iron Ore

Pellet/Sinter

IronMaking

Coal

SteelMaking
(14mtpa)

Hypermarts
Slab

Coke making

Resources

Plates
(2.0mtpa)

Beneficiation & Pelletization

Iron Ore & coal resources,

in addition to long term supply
contracts for raw materials to
facilities in India & Canada

Captive pellet
production at Vizag
facility and Orissa
pellet project

End Customers

(5 mtpa)

Pipes
(0.6mtpa)

Distribution

Steel Production
Full range of flat rolled products,
including value-added products such as
HRPO, Cold Rolled, Galvanized. Color
Coated, Plate and Pipe

Distinct distribution model

consisting of Processing and
Distribution Centers and
network of Retail Outlets under
the Hypermart brand

Operations span full value chain from raw materials to product distribution

Steel Industry Demands from IT

More than one planning strategy

A mix and match of planning strategies Make to-order

Make-to-stock
Planning without final assembly

Complex Product Variants

Customized products with a choice of multiple

characteristics (~30 per each product) with increased
complexity and specific Customer requirements

Flexibility demanded in planning

Planning generally is at a short notice

Continuous re-assessment of products and processes

Specific Customer Service

requirements

Coping with highly demanding customer segments like

Automotive, Line Pipe and Construction.

Complex Production scheduling

Complex Production scheduling with a constant need to

optimize production through a combination of continuous
and batch processes.

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Business Challenges Why VC

Individualized Metallurgical
Knowledge

Highly individualized Metallurgical knowledge & expertise

leading to risk of higher overheads.

Complex SKUs

Huge number of SKUs with the increased complexity and

specific Customer requirements.

Mapping Country Specific Steel

Standards / Grades

Every Country has Bureau of Standards which release

Steel grade Standards equivalence to internal
production standards remains a challenge (IS / BS / DIN /
JIS / AFNOR / SAE / ASTM / AISI are some examples of
mapped Standards)

Human Interventions

Ever Changing Analytics

Very high human intervention especially in the conditions

of re-work / re-processing (at production, quality decision,
rework scheduling, re-qualification)
Analytics become difficult to pin point and react to the
upcoming enquiries in a proper manner (e.g. analytics to
understand the product success in a required thickness)

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Tailor product to the Customer needs

VC Concepts and Functionalities
7 Products, 1400+ characteristics
(combinations of grade, chemistry,
dimensions, tolerances and processing
instructions

Pre condition
321 Characteristics
&Procedures
For HR Coil

Super BOM / Routing

HR Coil

HSM

HR COIL

Caster 1

V_HRCF

Dependencies
Precondition
Selection
Condition
Procedures
Actions
Constraints

CSP

Caster 2
Slabs

Standard Profile
Quality Profile
Service Centre
Profile
Stock Profile
Procedures &
Constraint
Net

Pricing
condition
Base Price
Dim Ex Price
Grd Ex Price
Market Extra
Process Extra

Material BOM
HRCF
HRCW
SLBNW
SLBW
Selection
Condition &
procedures

Task List
Packing
Rolling
Casting
Melting
Selection
Condition &
Procedures

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SAP-VC Features
Defines all kind of products (Finished goods, WIP)
VC helped the Sales person to put together specifications for the Product and
ensure that the product can be produced from defined specifications

Product structure in VC represented the entire hierarchy and flow of

production for all products forms
Considered all possible process path used for planning (alternative) and
manufacturing FG product
Quality profile helped R&D and Quality Assurance to manage Customers new
requirements made for the first time products.
Scalable model which reduced implementation time for new product buildup,
acquisition, brown field and green field project.

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Value AddedProduct Definition

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
Drastically reduced master data maintenance on a regular basis (reduced
from 90000 FG/WIP to 90)
Expert knowledge incorporated into the system to the extent possible
Standardization of processes and objectivity of decision making
subsequently less training (Standard VC setup with derived technical
inferences)
Order booking used to be a manual process with multiple documents and
at least three departments involved. The process is now extremely
simple and can be completed in 15 minutes max having known
customer needs clearly.

PPC is not reqd to create masters

daily!
Production process mapping thru
BoM and Routing is not required
to be done as a routine.

Knowledge has been systemized

with necessary inference criteria,
validations and constraints which
are prompted while entering the
order.

Mfg instructions are passed on to

L-II systems in a seamless
manner.

Challenges
Very significant time was invested in development of the Variant
Configurator.

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Value AddedTechnical Delivery Conditions

Change Proposed
SAP automatically determines whether requested product by the Customer
can be produced or not (Since capability matrix is mapped in SAP using
Variant Configuration)
QA/QC and PPC are involved in Inquiry stage only for those products
outside the capability matrix

Value Proposition
Removal of many non-value adding activities and documentation
Quicker response to Customers & Inquiry processing, thus reducing overall
cycle time
Simplified and standardized process

Challenges
Acceptance of new business practice was accepted after seeing benefits
Documentation of capability and its translation in Variant Configuration was
a challenge as knowledge was scattered across approx. 20+ people
Training on maintenance of Dependencies and Variant Configuration

TDC is now a set of system

parameters assigned to a product
and a sales order as per
Customers requirement.
These parameters are as per Plant
Capability and are flowing to Level
II systems for manufacturing
activities through respective
scheduling systems. There is no
manual entry.
Knowledge Bank for Technical
Product definition Systemized to
the maximum possible extent
(Order booking is possible without
involving QA/QC, PPC directly
unless it is a new product
requirement)

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Value AddedPlanning Simplified

Change Proposed
Order clubbing at melt plan preparation and slit production order preparation
is done in SAP.
Scheduling is done in MES system on the basis of input and out put product
characteristics as required by individual processes as guided by VC.

Value Proposition
Increased visibility of due date and production status across the entire
production 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 authentic
data, such as sales order, inventory status etc. which are readily available to
the planner

HRC Planning Dashboard has

been developed to cater to the
operational scheduling need of
150 MT heat combinations across
the Order book. Order clubbing
has been a MAJOR achievement
with smaller quantity orders
booked in the system.
Slit Planning Dashboard has been
developed to complete the flow on
the FG side of order clubbing to
cater to HSM needs for higher
productivity through slit
combinations.

Challenges
User acceptance of the changes in practice and user interfaces

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Value Added - contd

Structured pricing derivative from pricing masters inclusive of productivity,
additives, testing extras
Significant reduction in efforts to process Sales Orders
Use of Batch Valuation & Sales Order Cost Estimate for characteristics based
costing & inventory valuation
Improved transparency and Control in Planning, Production and Quality due
to single data source (All systems integrated to SAP)
Faster Quality Inspection (overall 15+ people from Quality department were
deployed for value added jobs / analytics)
Result recording through interfaces
Auto-Usage Decisions for acceptable limits pre-defined in VC
Feature to copy results in case of multiple samples

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Template for Roll outs, Merger / Acquisitions

Upon carving out of Essar Steel Solution template, repeat roll outs have
become possible in a compressed time frame with equal robustness and
scalability due to Clearly laid down methodology while integrating the new landscape
with the existing one
Common product definition templates, data collection formats,
calculation schemas, configuration frameworks, unified numbering
schema and standardized testing methods
Visibility and estimation made available at the speed required to merge
the new Company at process level granularity
Unified processes in sales, production and quality areas are with
interfacing strategies using object oriented technology
Global consolidation in terms of reporting becomes possible from SAP
BI/BO due to the single client strategy
Consistent Quality of solution with a template approach.

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Suggestions
Involvement of Metallurgists Major contributors in development of
VC
Be careful every mistake can prove dear
R&D efforts need to be considered to be taken up for development
as new product configuration can be time consuming

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Q&A

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