Episode 33

Conversations with Business Leaders: Saket Agrawal, Managing Director, MSP Steel and Power Ltd.

Category :  Leadership Paradigms

Commodities like steel are a challenge to differentiate based on product features. So, conventionally, steel companies are forced to compete almost solely on price/margins to win orders from customers/dealers. Unfortunately, 'price' is a very difficult factor to sustain as differentiator. However, there are ways for companies to differentiate themselves using reliability of service in commoditised markets like steel.

Tune in to find out how Saket Agrawal, Managing Director, MSP Steel and Power Ltd. transformed its strategy and operations to create a clear distinctive edge in the steel industry.

To read more about how reliability can be sustainable competitive edge for companies read: https://www.vectorconsulting.in/research-publications/equipment-manufacturing/reliability-of-delivery-brand-positioning-opportunity-for-custom-manufacturing-organizations/

Transcript
Shubham Agarwal : Steel is a commodity business with players mostly competing on price. How did you differentiate yourself ?
Saket Agrawal : So, one of the key things in the steel commodity business is that there is a continuous price fluctuation, which happens on a daily basis. And the way people sell themselves is only by cutting down prices, like you said, it’s a very price sensitive business. A lot of players in this business have gone in and tried to create a differentiation by branding themselves. Using brand ambassadors like a Salman Khan, Shahrukh Khan or whatever. But that model is also easily replicable. So, for example, one-person hires Salman Khan, the other can have Akshay Kumar or Shahrukh Khan. So again, it’s not something which will give you a differentiation for a substantial period of time. One of the key things which we did was in our target markets. A. First we focused the target markets to the areas where we feel. We are the most viable and we are most competitive because logistics cost is a key cost component when it comes to the landed cost for the dealers. So earlier we are working with bigger distributors in the region and limited areas only. So, what we did was we approach all the dealers in the target market rather than working with limited dealers. What we also did is try to create a win-win offer for the dealers where we can improve their ROI by couple of things. One is guaranteed availability, assured supply lead times and a long-term reward reward program called the Bandhan program.
Shubham Agarwal : What happened to the schemes you had earlier? Why did you discontinue those?
Saket Agrawal : we were having a gold scheme, which we ran for at least two years where if you achieve certain targets, certain quantity targets within a period of time, you going to get this much of gold and for more targets, you are getting more points or more gifts or whatever. The problem in that was at the closer to the end where your program is supposed to lapse. The dealers in order to fulfill the targets would end up buying more because they just have to complete the target. The fact that they would end up buying more is they would increase the inventory. The next month, ultimately, the buying would come down because they bought extra during the previous month, effectively, you were not increasing your sales. It was optical illusion that the sales you are doing will be increasing our sales. To the buyers because they were getting similar schemes on all your competitors, they were chasing multiple targets at multiple times during the year. So, you know, with this non-lapsing of points, we’ve sort of developed a dream gift for the dealer, which he would want to achieve, and say, two years, three years of four years for a dealer, for example, getting a car in a period of three years. If he delivers that much of points, something which is of a dream value for him, it’s something, he’s going to change his entire social stature within the society, in which he lives. So, this dream gift within a Bandhan program is a significant differentiator for us. And definitely, the fact that the points don’t lapse, and you can continue to add more points and look for some encashment at the end of two years, three years or four years.
Shubham Agarwal : Can you share key changes in sales , marketing and operations that you implemented to create the differentiator?
Saket Agrawal : So, one of the key things in TMT and structure is that there’s a wide range of products. So, within structures, also you have maybe 20 30 40 different SKUs which you are supposed to supply. One of the key issues which we were facing was every time a dealer would give us a order. He wants a product bundle like a basket of products within these range. We are offering and our plant mostly would have some sections there, some sections not there and there was this continuous tussle happening between the marketing team and the production team to ensure that we roll as per what the customer wants. And we’re just trying to chase something which you’re not being able to achieve. So, one of the key things we’ve achieved now is OTIF, on time in full, where we are targeting that we are going to have entire range available for both PMT and structures. And we are going to deliver on time to all our dealers. We’ve set a internal target of 48 hours of delivery from the time of order is when the shipment has to be dispatched from the market. Also, what we’ve done is we’ve added this day-to-day interaction with the dealers and frequent ordering module where the dealers rather than ordering whenever they want to order. We’re going to allow them to order once a week or twice a week. And try and give them smaller inventories, which will help them reduce the inventory, which they are carrying in their shops, and thereby cut down their overall investment in the business. Also, because of the price volatility, if they have lower inventory, the chance of them making stock losses on the inventory will also be reduced.
Shubham Agarwal : What has been the thinking behind this new way of working with dealers?
Saket Agrawal : See. First thing, fundamentally, any win for the dealer is itself a win for the company because unless you create a win-win situation, the dealers will not be coming back to you. What are we ultimately targeting? We are targeting the dealers to be loyal to us and they should keep ordering frequently with us. If as a company, we help them increase their ROI by reducing their inventory. And at the same time, ensuring that they don’t enter stock losses, they’ll be loyal to us, and they’ll keep coming back to us. Also, for the company perspective, from the production, operation side, maintaining a hundred percent availability of SKUs is very critical because we are going to service the dealer better. See like you said in a commodity business, price is something which you can always compete on service is something which you need to develop over a period of time which The dealers will always respect you for and come back to you for. So, the dealers’ loyalty is what is important for me, which is what we’ve targeted in doing now.
Shubham Agarwal : What challenges did you face during transition?
Saket Agrawal : So, the first thing was, you know, more than you know, what we can go and sell to the dealers, convincing the internal team that this is what we need to do, was the first hurdle. So, getting the entire production team and the marketing team on board was very, very critical for us. Secondly, there was always a continuous tussle happening between the production team and the sales team. So, we installed a program which was given to us by Vector called the Vector Flow where we set up a buffer penetration norms. Once that was set up, the production team was producing whatever, SKUs they have to produce based on the sales which was happening. So, rather than trying to chase what the customer might want, we were only producing to ensure that stock availability is there. So, the entire tussle between the production marketing was eliminated. Also, when we went out to the market, we have to convince the dealers because they were always stuck on to the schemes, which is provided by the competitors, which was finite. So, lot of Interaction, hard work, continuous, convincing the dealers to move to this new program was what was critical to us, and that mindset change is what took us the longest period of time.
Shubham Agarwal : What were apprehensions that dealers had about this new strategy? How could you overcome these?
Saket Agrawal : So, the dealers initially have two appreciations since we are working with bigger dealers, the biggest apprehension. When we mapped out the entire market, was in each area earlier we were giving only to one dealer. Suddenly we started giving to three dealers in the same area and a primary dealer had a severe reservation that my sales will go down. It took us lot of convincing sometimes. Personally, I had to meet couple of dealers, but the fact is that they realized that despite other dealers getting material from MSP their share was also increasing so, it not lead to a cut down in their sales, their sales also went up, and that is what practically happened. And they had to be, they had to wait for a couple of months before they got it. Also, this delivery thing there was definitely lot of apprehension from the dealer side whether we will be able to achieve delivery within 48 hours or not definitely initial appreciations were there. But when you continuously did that for the first two months, three months, four months, and they started getting delivery on time is when the buyin happened. You know, just by giving them empty promises, you know, there will be apprehensions but it’s the consistent delivery overview of time which made them convince that. Yeah, this might just work
Shubham Agarwal : Commodities like steel with fluctuating prices are known for speculative buying. How did you convince dealers to move to ‘pull’ based replenishment?
Saket Agrawal : A person always tends to believe that, you know, I can always time the market well, which realistically doesn’t happen over period of one year. You might have short term gains but when you average it over a period of one year, it doesn’t really happen. So that’s something which you have to convince the dealers on, and they realize because in the last two years, they, you know, there was this covid time and the market suddenly crashed all the dealers who were carrying significant inventory from other competitors, suffered losses, doing that period because the dealers were not carrying significant inventory. They realize that losses were much lesser so, some of this covid period for us was a boon because they realized that it really helps not carrying excess inventory.
Shubham Agarwal : What other benefits did you realize in the business?
Saket Agrawal : So, if I would say my availability earlier used to be 55-60%, it is now close to 97 to 100% (super: Availability improved from 55-60% to 97-100% ) availability of all SKUs at all points of time. Um, one of the key complaints of our markets was delivery and sometimes the dealers’ orders were delivered after seven days ten days because of either lack of SKU availability or lack of vehicles. Today we have confidently, assuring 48 hours of delivery (Delivery 7-10days improved to 48hrs). And from what we have tracked every month we are achieving that close to 98-99% in terms of on time delivery (OTIF now 98-99%). Also, a target market, which is the Chhattisgarh market which is within a 200 kilometres area. Our sales have definitely moved up from say around 800 tons to 1400 tons which is close to 70-80% jump (sales of TMT Bars improved by 70-80%). And in terms of structures in a target area, these sales have doubled (sales of Structures improved by 100%). So, yeah, in terms of volumes, in terms of availability, I think we’ve done phenomenally well. We’ve also managed to get some, some amount of premium in the market now because once the dealers have started realizing that you know, they’re getting 100% availability on time, we sort of managed to get close to 7-10% premium as well on a pricing and we’re looking at. Increasing it to 20% now (Able to command a premium of 7-10-20%).I think we were earlier working if I look at my one significant market, which is Chhattisgarh, we were working with 50 dealers, today on a frequent basis we are selling close to 200 to 250 dealers and we’re looking at, moving it to 400 (400 % increase in number of dealers).
Shubham Agarwal : Any de-stess effect?
Saket Agrawal : I believe the production people’s life and the sales team life has been made simpler. And definitely personally me, requiring to keep getting the two departments together and handle the egos, and try, and come to a resolution between them has totally been eliminated. So, I am definitely not involved hands-on anymore. Everything works like a clockwork mechanism …
Shubham Agarwal : How are these benefits and insights shaping the future of the company?
Saket Agrawal : So, one of the key things we realized that, you know, once we have this dealer network in place, we’ve sort of created a pipeline. Now, we look at the dealer. So, the dealer apart from my TMT and structures from us. What else is he buying from other people? We figure out his buying something called the rings. He is buying something called binding wire. So, already started these two products and we are supplying to the same market. We are now moving to pipes. And we’re going to launch MSP pipes in the next two months and realize that 80% of our dealers would be currently already keeping this product. They are keen to keep this product because the target customer is the same. So, you know, as we are growing, we have trying to get the dealers to also grow with us. They will be either servicing the product they already keeping or we’re going to help them even keep these products as well. So that’s what we’re looking at now.
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