Competitive advantage through need based segmentation and value addition in Iron ore industry

 
              Competitive advantage through need based segmentation

and value addition in the iron ore industr
       
                By

Niraj Kumar

Software Developer, Kolkata ' 700026.

West Bengal, India

E-mail: nirajkumariitkgp@gmail.com

Contact No:  (Mobile).

© 2003 Niraj Kumar. All right reserved.

Project Summary: India is an important player in iron ore and steel market globally. It is

expected that iron ore prices will fall over the long term while demand continues to rise.

Also the iron ore industry has been facing the challenge of deteriorating mining

conditions. These include ever-deepening mines, growing waste-to-ore ratios, longer

hauling distances and the depletion of high-grade ores. Between 1998 and 2002, the

weighted average cost of non-agglomerated ore globally was fell by 24% (on FOB basis),

while pellets cost dropped by 9% (Iron ore 2003, AME's Report). The Indian iron ore

industry needs to respond to these issues with reducing costs, increasing output, process

re-engineering, product quality improvement and better customer relations. Also,

The iron ore market is not one single market. It consists of several submarkets of which

the market for fines, the market for lump ore and the market for pellets are the most

important. Fines, sold in the market are usually sintered at the steel mill, while lump ore

and pellets can be fed directly into the blast furnace. Pellets are usually produced by the

iron ore producer at the mine site.

To gain competitive advantage, it is imperative that customized service should be

provided to the customer according to their need. For this identification of customer

needs and need 'based segmentation is required. This is one of the objectives of this

study. After segmentation and identification of needs, company needs to develop its

mining, processing and service strategy accordingly. A typical iron ore company

undergoes one or more of the following processes:

(1) Stripping Overburden

(2) Drilling and Blasting

(3) Loading of iron ore and waste, usually on trucks

(4) Haulage to crusher for primary crushing and sizing

(5) Further haulage or processing through stages of crushing, screening and in some

cases according to customer need, washing, to produce lump and natural fine ore

products

(6) If necessary, beneficiation by crushing and separation of iron through magnetic

floatation or other methods

(7) If necessary, pelletization by mixing ground ore with a binder and indurating in a

grate or furnace

(8) Road or rail transport to a blendery or storage stockpile at the point of shipping or

directly to the customer in case of domestic market.

Apart from these partial lists, there are many activities which any

organization goes through in their day to day functioning. If we consider from

production planning to overburden removal to final product delivery to the customer

as one process, then this whole process goes through a number of sub processes.

These sub processes can be classified as value adding processes, Essential processes

and non value adding processes. Target of this study is the identify non value adding

processes and improve upon existing value adding and essential processes. This way

we can suggest the mine management to eliminate the non value adding processes

and increase the value adding processes according to the need of every particular

segment of customer. This helps in lot of cost reduction and quality improvement and

gives better value to the customer. This help the iron ore company to retain their

existing customer base as well as increase customer base by giving better value to

customer and thus greater customer satisfaction.

In short we can say that purpose of this

study is two fold. First is identifying the need of iron ore customer and accordingly

segmenting them and then streamlining the current company processes to fulfill their

need with better value and thus gain competitive advantage over their customer.

METHODOLOGY: The purpose of this study is to identify the attributes of iron ore

which are important for customer point of view, identifying the group of buyers that

possess similar characteristics and analyzing the iron ore company performance relative

to these. Then on the basis of firm present and potential capabilities, suggesting the best

course of action and improvement in present processes which help to satisfy need of

particular segments of customer and thus give better value to the customer to gain

competitive advantage over their competitor. The work can be divided into three stages.

STAGE I: Identifying the need of the customer and segmenting them on the basis of

similar characteristics. Literature review revealed that industrial customer buying

behavior is very complex and often not a single person but a group of persons like

initiators, users, influencers, deciders, approvers, buyers, gatekeepers etc influence the

buying decision of a firm. There are many characteristics of iron ore which affects its

performance in blast furnace and quality of steel made like reducibility, size and size

distribution, Strength, Softening range, Swelling and volume change, iron content,

moisture content, gangue contents etc. Again cost, quality and technical specifications of

the product is the most important criteria influencing the buying behavior of the

customer. Our primary task is to identify the characteristics of iron ore which are major

concern for the consumer. For this purpose Qualitative data collection from customer

through Questionnaire is the best Option.

After this we need to identify the importance of the various characteristics of the

iron ore with customer point of view and the perception of the customer about the

performance of the company in fulfilling these characteristics. Literature suggests there

are two widely used method for this, one is qualitative method, also called laddering

(which is the most widely practiced presently) and other is quantitative approach (like

Association pattern technique). While both of these approaches has its suitably and

limitations according to situations, in industrial setting it is often desirable to make the

conclusion on the basis of both, to considerably reduce the chances of error.

Qualitative data collection: For these in-depth interviews with the customers of the

company required. Interview should be conducted in such a manner, which allows the

customer to tell the story from their own prospective. The qualitative data so collected

should be interpreted correctly and analyzed using analysis of variance (ANOVA).

However this method has its limitations. It is time consuming and needs to be carried out

by trained interviewers. It is an expensive data collection technique. Moreover, it places a

serious burden on respondents and quality of data may be affected by respondent fatigue

and boredom. So some quantitative oriented technique to find the customer response is

also proposed to apply.

Association pattern technique (APT) is one such quantitative technique.

APT is inspired by Gutman (1982). APT method uses fixed format for questionnaire.

This implies that free-response format in the laddering required the respondents to recall

the concepts from memory, whereas the fixed-format of APT is associated with

recognition of these concepts that are presented to the customer. This may lead to

differences as recall and recognition are quite different processes. The total number of

recognized concepts typically exceeds the total number of recalled concepts. This may

suggest that total number of attributes is greater in APT than in laddering. In contrast to

laddering attributes in APT are provided by the Researcher. In APT an Attribute-

Consequence matrix (AC matrix) and a consequences- Value matrix (CV matrix) are

distinguished. It is assumed that attribute of the product and its consequences are directly

related and consequences and value are directly related with each other. However AC and

CV are independent to each other. Also analysis of the data with APT is simple due to the

standardization of the concepts used. It will very interesting to check convergent validity

between Laddering and APT Technique. After analyzing the data by using some

statistical technique, we able to separate the customer with common preferences and

segment them and on the basis of this segmentation the company can make their strategy

according to particular segment of customer.

STAGE II: In this stage firm performance and importance attribute identified by

customer is analyzed using Performance-importance analysis. There are various

approaches of majoring performance of a Organization like gap analysis, performance

ratios, comparative scales etc. In gap analysis performance of the firm on each attribute is

compared with the performance of the best competitor in the market and accordingly

positive and negative gap obtained were analyzed. Positive gap means firm has superior

performance on these account and it is core competence of the firm. Negative gap means

that firm need to improve upon these attributes to remain competitive. Similarly is the

approach in case of performance ration. Here in case of subtracting the attributes we are

dividing this. However with this kind of performance analysis it is difficult to identify the

deficiencies which industry as a whole is going through. In comparative scales, instead of

performance comparing with its competitor, it is compared with some standard scale.

Depending upon the purpose the standard may be anything from more than mean (say

more than 5 on a scale of 10) to top box performance score like 9 out of 10. However

fixing the standard of performance on the basis of individual firm goal is the most logical

approach and in this study we try to measure the performance of the firm on the basis of

the firm goal. After doing performance-importance matrix analysis, we able to identify

the strong as well as weak link in the processes of firm. If the importance as well as

performance is high on any attributes that means firm is doing fine on these attributes and

these are core competence of the firm to get competitive advantage in the market. If

importance score are high, while performance score are low, it means these are the weak

area of the firm and the firm needed to immediately address these in order to get

competitive advantage. If importance is low, while performance is high, this means that

unnecessarily firm using their scare resources on these and some of these resources needs

to be diverted on high importance and low performance area. If importance is low and

also performance is low, then these issues may be not issues of immediate concern.

STAGE III: In this stage the detailed flow chart of all the processes from start to the

point of delivery to the customer is needed to be made. For a typical iron ore company

these processes may start from exploration stage to development and planning and may

cover combination of the following

(9) Stripping Overburden

(10) Drilling and Blasting

(11) Loading of iron ore and waste, usually on trucks

(12) Haulage to crusher for primary crushing and sizing

(13) Further haulage or processing through stages of crushing, screening and in

some cases according to customer need, washing, to produce lump and natural

fine ore products

(14) If necessary, beneficiation by crushing and separation of iron through

magnetic floatation or other methods

(15) If necessary, pelletization by mixing ground ore with a binder and

indurating in a grate or furnace

(16) Road or rail transport to a blendery or storage stockpile at the point of

shipping or directly to the customer in case of domestic market.

However apart from these there

are many other activities go into running of any Organization. Here, we need to find out

value adding, essential and non value adding processes. We can suggest to eliminate or

minimize the non value adding processes from the whole processes. Also essential

process need to be reduce to minimum as these are non value adding processes. After

getting the result from stage II, We need to concentrate on those value adding processes

which are critical for customer point of view. We intended to improve upon these value

adding processes by suggesting some improved method or practice. However our

approach is to concentrate more on mining processes (& not on concentrating or pelleting

processes as these are domain of metallurgy engineers) and on transportation of the iron

ore product from stockyard of the company to the customer (It is observed that

transportation cost is usually very high on its share on the total cost may be upto 50% for

international market to upto 30% for domestic market, However rarely less than 10%).

How to analyze processes?

A process is any part of an organization that takes input and

transforms them into outputs that, it is hoped, are of great value to the organization than

the original inputs. The processes can produce product as an output or services can be

product of a processes. A good way to analyze a process is with a diagram showing the

basic elements of process- typically task , flows and storage area. Processes may be

single stage or multistage. In case of multistage processes buffering may be required in

order to prevent starvation of some processes. Process selection is also a very important

parameter to gain competitive advantage i.e. whether to go for job shop or mass scale

production. Iron ore industry usually follow make to stock philosophy. A make to stock

process can be controlled based on actual or anticipated amount of customer demand. A

target stocking level is set and process is periodically activated to maintain that target

stocking level. Processes may be pacing or non pacing type. Pacing means processes

which needed to complete in a specified time frame, while there is no such standard time

is necessary than it is called non pacing process. In the processes where large number of

work force is employed than by work measurement and with proper job design and

improving the working environmental usually lead to improved value addition in the

processes.

After this measuring the performance of each processes is very important task

to increase the value addition. There are many traditional way of measuring performance

like partial or overall productivity, efficiency analysis or by identifying the Operation

time, throughput time , run time etc of the processes. We need to remember here that

time is money in competitive environment and by reducing time of any processes we are

adding value to that process. Also better value can be added to processes by following

one or more of the following activities:

(1) By performing activities in parallel

(2) By changing the sequence of activities

(3) By reducing interruptions in the processes

(4) By integrating more processes into single processes etc.

Proper facility layout also makes

processes efficient and thus add value to the product. By suggesting better transportation

system or better stock management method, we can significantly add value to the

processes. Finally, through better service to the customer, we can significantly add to the

value of the process. Now days service is considered to be most important value addition

activity and with very less additional cost. By suggesting better means of service we can

significantly add to the value of the processes. Then, on the basis of above analysis, the

improved flow chart of all processes needs to be drawn. With this project work we hope

to significantly improve the competitiveness of Indian iron ore company and able to give

better value to the customer which may result in greater customer satisfaction.