A CRM/SCM Approach to Steel Industry with SAP-MTO Process
This document will help to understand the overview of Steel Industry business and process flow from customer/supplier perspective and industry’s supply chain. This document will explain a business case i.e. Make-to-order at the product level and its mapping to SAP by order creation scenario and how variant selection takes place in the order.
1. Business Trends in Steel Industry- the current trends in the steel industry majorly focusses at the below three parameters:-
A. Vital Business constraints
• Cost-cutting measures
• To stabilize and control the process
• To ensure a high level of Customer Satisfaction
• Dynamic and varied Product Mixes
• Stiff Statutory & Regulatory Compliances
B. Current Environment
• To optimize the Utilization of Asset
• A shift of Business value chain to Global Value Chain
• To plan Overcapacity / Relocation
• High Demand for Innovation
• Success factors in Merger and Acquisition
C. Major IT Trends- Steel Industries are now moving towards:-
• Consolidation and centralization of IT assets
• Shared Service and Center of Excellence Models
• Efficient Plant Operations Management
• Better Supply Chain planning
• Looking beyond Sourcing Solutions
• Accurate Product & Process redesign
2. Steel Industry Value Chain-Supply chain management
The Supply chain of the Steel Industry as shown in Fig 1 illustrates the involvement of supplier-end customer throughout the value chain and the business function pillars supporting this chain.
3. Business Challenges in the steel industry
a. Specific challenges:-
i. Fluctuation in demand for steel by property sector (38% of demand) Infrastructure construction, followed by a demand for machinery, cars, and shipping.
ii. Reduction of Carbon footprint/Improving energy efficiency
iii. Volatile raw material price, Dynamic and complex configurable product based Pricing strategy.
iv. Product-mix improvement: Multiple Steel product lines across different mills.
v. Increasing operational efficiency and raw material management vi. Integration of business between Trading company & manufacturing units spread across different countries
vii. Lack of qualified professionals.
viii. Lack of effective support for customer services – inability to meet customer demand for collaboration and information
b. Generic challenges
i. Unable to address the requirements that customers have which are becoming much more demanding
ii. Enterprise-wide standardization and seamless integration of core processes
iii. Lack of real-time, transparent data; limited visibility of inventory and production
iv. Redundant data maintenance elimination
v. Reduce transaction costs, reduce operating costs and shorten time to market
vi. Improve supply chain management and distribution channel
4. Steel Manufacturing Process Flow
Fig 2. Process flow of steel manufacturing
5. Customer perspective at Demand side- Business Process
The below figure represents the flow of the process from translating the opportunity to order followed by manufacturing of the ordered product and finally invoicing and shipping it to the customer. Apart from core, the other business functionalities which support the process are also explained in the figure. The details provided under individual steps illustrate the functionality.
Fig 3. Process flow from order to invoice
6. Supplier/vendor perspective at Supply side- Business Process
The below figure depicts the process of procuring the material via supplier which is being managed through supplier relationship management and then manufacturing the product and finally invoicing and shipping it to the customer. Apart from core, the other business functionalities which support the process are also explained in the figure. The details provided under individual steps illustrate the functionality.
Fig. 4 Process flow from purchase to invoice of material via Supplier relationship mgmt
• MRO- stands for Maintenance, Repair, and Operations
• Sourcing-To Identify supplies and components needed for product manufacture and services for a company’s daily operations as well as negotiating the optimal commercial terms for the company.
7. Business Process-SAP mapping
Procure to Pay
Materials Management (MM) & Finance (FI) and Controlling (CO)
Make to stock
Production Planning (PP-PI) & Controlling (CO)
Make to order
Sales and Distribution (SD) & Finance (FI) and Controlling (CO)
Finance (FI) and Controlling (CO)
Human Resource (HR)& Finance (FI)
8. In product variant scenario the business process case at the product level is as explained below –
• Steel Products have a complex selection and combination of different characteristics & properties which define their product mix.
• There are specific checks related to the rolling mill to be covered which includes– steel properties/Grades, width, allowed thickness, length, etc.
a. Process Mapping in SAP
• SAP addresses this Business Process through Variant Configuration.
• Different classes are configured for Hot Rolled, Cold Rolled, Galvanized, Tin plated products of steel.
• Characteristics and permissible values are created which defines steel dimensional properties and compositions based on mill like dimensional tolerance, product standard, and steel grades, etc
In the steel industry, the following typical steps of make-to-order scenario takes place which has been explained by creating a sales order and how the variant selection functions in the order:-
Step 1. Once the inquiry (from a customer) and quotation (from manufacturer) phase is over and the customer sends a purchase order, the Sales order creation takes place
• Here based on the region the sales organization can be classified as domestic sales or international sales for example 1000 or 2000
• A steel industry can have multiple sales offices so this is also considered during order creation and this helps to monitor the region wise sales volume.
Step 2. Select the material and manually input the order qty, Amount, usage (this is to identify during reporting how much business transaction happened for which type of customer) and delivery time, in case of text to appear on the order document the same can be written at the text box.
In steel industry, the same material can be manufactured in different plant locations, hence Plant can be manually entered during the sales order creation.
Step 3. Material configuration: At the time of order creation there are specific checks that have to be performed during configuration of material like thickness, tolerance, etc. For example, on item thickness, a tolerance range is defined in the system and if the user enters beyond the permissible tolerance range then the system will check and give an error message.
Further texts input like sales remarks or Inspection by 3rd Party comments can be entered in sales order at the time of material configuration.
Step 4: At order header level in Text tab special remarks that is useful during the logistics process can be included which can be captured on the sales document like freight cost and material delivery date.
Step 5: After the final configuration of material save the order and the order will be directed to the production planning and control for manufacturing.
Step 6: After the material is manufactured at the plant, the corresponding sales office receives the production confirmation and ready for dispatch schedule. The accounts officer verifies the credit limit of the customer and sends clearance to dispatch the material, the logistics are then planned and outbound delivery and PGI followed by Invoicing take place.
Finally, the ordered material reaches to the customer’s location and based on the payment terms the customer pays the invoice amount thereby settling the outstanding account. This completes the sales cycle.
b. The Business Benefits
• By mapping to SAP, it facilitates easy material master maintenance and reduction in the number of material codes.
• Also different characteristics and properties like grades, thickness, width, length, etc. can be tracked in the system.
About the author: Rahul Prakash
Rahul is a Consultant in the Manufacturing SAP practice of Infosys. He has over 6 years of experience in sales and marketing in metal industries with 2 years of global consulting experience.
He is an SAP-SD Certified Application Associate and has been part of global SAP rollouts, and has worked with established companies in the Steel and Automotive.
Rahul holds an MBA in Marketing & IT from ICFAI BUSINESS SCHOOL Hyderabad, India, and Metallurgical and Material Science Engineering degree from National Institute of Technology Jamshedpur, India.