

MSP Steel
MSP Steel & Power Ltd is a large Indian manufacturer of sponge iron and trader of steel products. They have manufacturing facilities are at Raigarh and Keonjhar and their products - TMT and structural steel, are primarily sold to retail dealers in Chhattisgarh, UP, Orissa, Jharkhand, Gujarat and Maharashtra.
Commodities like steel are almost fungible - each unit, irrespective of whoever produces it, is identical. So, producers of such products are forced to be ‘price takers’- they must accept whatever price the market offers them on any given day. Further, the bulky nature of the product means that logistics costs etc, increases whenever the products are sold further away from where its manufactured.
Therefore, the company partnered with Vector with the objective of improving profits by maximizing volumes of TMT and structural steel sales in the home markets near the Chhattisgarh plants where MSP obtains higher realizations. After implementing pull-based operations and distribution, increased frequency of servicing dealers and a unique loyalty program for dealers, the company not only significantly increased immediate sales in in target markets but also secured the loyalty of most of their dealers.


Client Speaks

In a commodity business, price cannot be the differentiator. Service can. It can be developed over a period of time. Dealers will always respect you for it and stay loyal to the company.
In the steel commodity business, the price fluctuates on a daily basis. Players cut prices to boost sales. Many companies have tried branding exercises using popular Bollywood actors only to discover that any differentiation they achieve is fleeting.
We did not go that route. Firstly, we chose to focus on only those markets where we would be most viable. Here, we connected with all the dealers, not just the big ones. Next, we crafted a win-win offer for them, worked on improving their ROI. We achieved this by enhancing availability, shortening and stabilising supply lead time, and introducing a reward programme called Bandhan.
We ran a ‘gold scheme’ for two years. Dealers were rewarded with gold for achieving pre-set targets. They were also given points and gifts for exceeding targets. The downside was that as the program approached the closing date, dealers would buy extra quantities just to fulfil targets. This buying would only inflate inventory at the dealers. Purchases would dip the following month. Sales would not go up. Besides, our competitors offered similar schemes, similar targets for the dealers. We had to introduce a program that would be compelling enough for dealers to devote energy to our brand. That is how we came up with the Bandhan program – there is no closing date, the points don’t expire. Dealers are encouraged to accumulate points for three or four years and trade them for a high-value, aspirational items such as a car. This program has delivered the differentiation we were aspiring for.
Our inability to deliver the full bundle of products that dealers asked for was a persistent source of conflict between the marketing and production teams. We resolved this by achieving OTIF (on-time-in-full). ensuring that we have the entire range available, assuring on-time deliveries. We target to ship the products within 48 hours of order placement. Also, we put in place systems that facilitate frequent interactions with dealers, these systems also encourage dealers to place orders once or twice a week; they can ask for small quantities. This keeps their inventories low, cuts down overall investment in the business. Lower inventory also means that the dealers do not incur heavy losses due to price volatility.
Any win for the dealer is a win for the company. We had to create a win-win so that the dealers are loyal to us, place frequent orders for our products. We help dealers increase ROI by reducing inventory. At the same time, we shield them from stock losses. We strive to maintain 100% availability of SKUs so that dealers never suffer stockouts. In a commodity business, companies can develop a sustainable edge by fine-tuning the service they provide to dealers. Over time, they can earn the respect of dealers. We’ve put our energies into building a partnership with our dealers. We value the loyalty of dealers.
The first challenge was bringing on board dealers, the many teams within the company. The production and marketing teams were especially difficult. To improve the harmony between sales and production teams, we introduced the Vector Flow program offered to us by Vector consulting. This program allowed us to formulate the buffer penetration norms. With these norms, we were able to match production to consumption. In other words, we only had to work towards ensuring availability. So, the tussle between production and marketing teams was eliminated. We also had to work intensely with dealers to wean them off finite schemes which deliver little value yet do a lot of harm to all parties involved. It took a lot of effort and time to change the mind set of dealers.
As we began working with more dealers in every area, the big ones or primary dealers began to anticipate loss of business. The opposite happened. Gradually, their share of business increased despite the increase in number of dealers . Dealers were also sceptical about our ‘delivery within 48 hours’ assurance. The doubts eased over many months as we consistently delivered on the promise.
A speculative buyer is confident that they can time the market well. However, realistically they rarely get it right. They might achieve short term gains, in the long term they don’t make any significant profit. Dealers have to be convinced of this reality. In the last two years, during the lockdown, those that carried high inventory suffered losses while those with minimum stock escaped almost unscathed. In a way, the pandemic was a boon because it helped us drive home the point.
Availability rose from 55-60% to 97-100% for all SKUs. We have successfully addressed the issue of availability which was a chief reason for complaint. Often times, dealers’ orders would be delayed by seven to ten days owing to SKU unavailability or shortage of vehicles. Today, we assure delivery within 48 hours of order placement. Our on-time delivery is close to 98-99%. Our sales have gone up from 800 tons to 1400 tons in our target market – Chhattisgarh. The number of dealers in our network shot up from 50 to 250. We plan to take this to 400 in the coming months.
In terms of structures in a target area, the sales have doubled. We’ve done phenomenally well in terms of volumes and availability. We’re able to attract premium pricing (of about 7-10%) in the market, thanks to our service record. We’re now looking to raise it to 20%.
Yes, all those involved in production and sales have reported significant drop in stress levels. I no longer have to expend time and energy on conflict resolution, on soothing egos. This has released capacity for investing in achieving the goals I’ve mentioned. Everything works like clockwork now.
Once we had this dealer network in place, we began to see it as a ‘pipeline’. We asked, apart from our TMT and structures, what else is a dealer shopping for and where? The answer was rings, binding wire. We started making these products and supplying to the same market. We are now adding pipes to our product line. It will be launched in the next two months, 80% of our dealers would be stocking this product. They are keen to do so because the target customer is the same. We are growing the dealers along with our company and business.
Video Case Study
MSP Steel & Power Ltd. - How to differentiate a commodity product
Mr. Saket Agrawal, Managing Director, MSP steel speaks about how steel, which is essentially a commodity product, can be successfully differentiated. He discusses how by implementing a “pull” distribution system to enable unparalleled availability, frequent servicing, much lower inventory
Other Case Studies

Godrej Interio Healthcare

Kirloskar Oil Engines Limited-NPD

Godrej Material Handling

Bajaj Luminaires Division

Schneider Electric

Kirloskar Oil Engines Ltd. (KOEL)

Godrej Securities Solutions

Godrej Storage Solutions

Kirloskar Oil Engines Ltd (Spares And Services)

Godrej Tooling

Action Construction Equipment Limited - ACE Cranes

Lakshmi Machine Works Ltd. (Machine Tool Division)

Raychem RPG

Filtrum Tools

GMM Pfaudler Ltd

Hercules Hoists Limited

LMW Machine Tool Division (MTD)-New Product Development

L&T – Heavy Engineering

Jakson

Shanthi Gears

Greaves Cotton Ltd.

PARI

Badve Engg

International Tractors Limited

Ashok Leyland- Spares Parts Division

Tata Motors-Spare Parts & Services Division (Commercial Vehicles)

Ashok Leyland – NPD

Fleetguard Filters Pvt Ltd

JK Fenner (India) Ltd

Kirloskar Ferrous Industries Ltd (KFIL)

Lucas Indian Service Ltd.

Mahindra First Choice Services

Mahindra First Choice (Spares And Services)

Tata Radiators

Fleetguard Filters Pvt. Ltd. (NPD)

Filtrum Polymers Pvt. Ltd.

Royal Enfield

TVS Motor Company Ltd

SKF

Volvo Eicher

Tata Autocomp Systems Ltd

Shriram Pistons

Aditya Auto

ASK Automotive

Blackberrys

Pratibha Syntex Ltd

Raymond Luxury Cottons Ltd.

A Major Vertically Integrated Linen Exporter

Raymond

Trident Group (Home Textiles)

Dollar Industries

Arvind Fashions

Dr. Reddy’s Laboratories

Lupin

Sun Pharma

Ajanta Pharma

Strides
A large generic drug manufacturing company - Quality labs

Bajaj Electricals Engineering And Projects Division

Godrej Electricals & Electronics Division

Skipper Limited

KEI Industries Ltd

Tata Bluescope Steel Limited

Tata Metaliks

Fleetguard Filters

Trident Group

Godrej Security Solutions

Sterlite Technologies Ltd.

Godrej Interiors

Godrej AV

Salasar Techno Engg.

Godrej Interio-NPI

Bajaj Electricals Limited (CP)

VIP Industries Ltd

Jindal Stainless Limited

Godrej Megasari

Parag Milk Foods Ltd.

Walkaroo International

Godrej Interio-Home Kitchens

Liberty Shoes Ltd

JK Files And Tools

Godrej Interio- Service And Spares

Landmark

Liberty Retail Revolution Ltd

Godrej Interio - office furnitures

MSP Steel

Skipper Pipes Limited

Pidilite

Sintex Industries Limited

Century Plyboards India Ltd.

Asian Granito

APL Apollo Tubes Limited (APL Apollo)

Vaibhav Global Limited

Kirloskar Agri

Shakti Pumps

Westside

Viveks

Godrej Hershey’s

Future Retail Ltd

Yellow Diamond (Prataap Snacks)

Kurl-on

Daawat

Shalimar Paints

Polycab

Kelloggs

Linc pens

Lenskart

Jindal Stainless Steelway

Bake with Yen

Luminous Power Technologies Pvt. Ltd

TI Cycles of India Ltd

Ambuja Cements

TATA International

TATA Steel
Get in touch
Vector Management Consulting Pvt. Ltd.
10th floor, Thane One, DIL Complex,
Ghodbunder Road, Majiwada,
Thane (West), Maharashtra - 400610, India.