5 Risk Factors To Avoid While Buying Steel Raw Materials In India

Buying steel raw materials is a complex and risk-laden process, especially in a price-sensitive market like India. As a business looking to buy Steel Raw Materials like Steel Billets in India, it's essential to mitigate and manage risks that can lead to financial losses, stall production, and disrupt the supply chain.

This post will look at the six most common risk factors buyers of steel raw materials in India should watch out for and strategies to avoid them. Understanding these risks better can help create effective risk management plans.
The five factors we will cover are:

1. Lack of Visibility into Raw Material Prices:‍

As many as 65% of procurement leaders have limited or no visibility beyond their tier-one suppliers, according to the Deloitte annual Global Chief Procurement Officer (CPO) survey.

In India, the prices of Steel Raw Materials, such as Steel Billets, are subject to frequent changes and can vary based on the location. This variability is influenced by factors like taxes, demand dynamics, and other market forces. Unfortunately, buyers sometimes end up purchasing materials at higher prices because they are not promptly informed of these changes, leading to potential losses.

It's essential for buyers to have real-time information about these price fluctuations while buying Steel Billets or other Steel Raw Materials . However, many buyers rely on outdated price indices or solely depend on the latest seller quotes, missing out on discovering the most competitive price points across the supplier landscape. This approach often results in sub-optimal procurement costs.‍

‍To address this, having access to accurate price indices and market reports that provide insights into the current market conditions is crucial. With this visibility, buyers can make more informed and strategic decisions when procuring steel raw materials.

These types of risks can be mitigated with Steel raw material consolidated Platforms.These platforms combine various aspects of the procurement process, providing a centralized hub for real-time information on steel raw material prices. By integrating advanced technologies and data analytics, these platforms offer accurate and up-to-date price indices, empowering buyers with comprehensive insights into market trends.

2. Fragmented Procurement Processes:‍

In the Indian procurement landscape, a prevalent issue is the lack of organization in the acquisition of steel raw materials. This disorganization not only affects the procurement process but also permeates the supplier identification stage.‍

‍When it comes to identifying suppliers, the current approach involves floating multiple small requests for quotations (RFQs) without considering the overall volume required. This fragmented method can lead to a deficiency in procuring the right amount of steel raw materials at the most favorable prices. The consequence of this approach is a less-than-optimal procurement outcome, both in terms of quantity and cost.‍

‍Furthermore, the entire procurement process experiences significant delays due to the lack of coordination between different components of the system. Information exchange occurs in a less streamlined manner, primarily through emails and calls, introducing unnecessary complexities and potential miscommunications.

Addressing the disorganization and inefficiencies in procuring steel raw materials in India involves considering vendor digitization as a key solution. By incorporating digital tools and platforms, businesses can create a more transparent and integrated supply chain, improving communication and data exchange with suppliers. This digital approach simplifies the procurement process, enhances negotiation outcomes, and reduces dependence on traditional communication channels, promoting informed decision-making and operational resilience in the evolving steel industry.

3. Supply uncertainty:‍

Timely supply is a significant concern when it comes to buying steel raw materials in India. The uncertainty starts during production, where frequent disruptions, such as power cuts, labor problems, and delays in importing crucial materials like coking coal, can hinder local steel raw material production.

Another obstacle is the logistics infrastructure, creating bottlenecks in transporting steel raw materials from production units to buyers. Transporters deal with uncertainties like congestions, regulatory blockades, and other delays, further complicating the supply chain. More than half of the suppliers in this landscape are unorganized, lacking the maturity in their processes to maintain sufficient inventory or backup capacity during unforeseen disruptions, impacting their ability to fulfill supply commitments.

To tackle this, adopting consolidated platforms and vendor digitization is key. These solutions enhance visibility and efficiency, addressing disruptions during production and logistics bottlenecks. Consolidated platforms improve inventory management, ensuring a timely supply of steel materials. Vendor digitization streamlines communication, reducing delays in the procurement process. Altogether, these measures offer a practical solution to navigate disruptions and enhance the resilience of the raw steel material procurement process in India.

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4. Poor vendor sourcing‍

Sub-optimal vendor sourcing and selection practices compound the supply chain risks for steel raw material buyers in India. Even large established manufacturers often end up working with unsuitable vendors driven by factors like personal relationships and proximity rather than a data-driven evaluation of production capability, quality systems, business continuity plans, and overall service reliability.

The landscape has mostly unorganized players with limited formal capabilities. They lack advanced technological infrastructure and financial strength required for a transparent and consistent supply chain. Small players struggle on thin margins and cash flow issues are common. There is also ignorance or avoidance of critical legal and regulatory compliances around safety, sustainability, labor welfare etc, which creates longer-term risks for the buyer.

Dealing with such under-resourced vendors translates into inadequate buffer stocks, inferior grade materials prone to rejection, lack of supply commitment in times of disruption pressures, loss of production days and stretched cash cycles for buyers. Material testing and quality control requires additional investments.

Buyers have to balance cost competitiveness with vendor reliability through robust data-driven assessment across various performance parameters right from financial health to process capabilities. Developing organized tier-2 suppliers improves sustainability while localized sourcing avoids logistical bottlenecks. Investing in vendor integration and co-creating value also yields mutual benefits over time.‍

5. Lack of Working Capital

Ensuring sufficient working capital is vital for both steel raw material suppliers and buyers to navigate the procurement cycle smoothly. However, this has become a notable concern in the Indian manufacturing sector due to systemic issues. Smaller players, especially in the unorganized steel supplier landscape, encounter challenges in accessing formal credit channels and often heavily rely on advances from buyers, leading to uncertainties and payment delays. The limited support from the banking sector makes it tough for them to maintain buffer stock inventories, adding uncertainties to the supply chain.

On the demand side, buyers also face limitations in working capital loans, impacting their ability to provide vendor advances. This challenge intensifies during rising input material prices, impacting supplier profits and causing disruptions downstream. Insufficient working capital poses a systemic risk throughout the steel procurement value chain, emphasizing the importance of collective action.

Supply chain financing offers a solution to these challenges. By leveraging supply chain financing, smaller players can access the necessary funds to maintain inventory levels and manage uncertainties. This not only benefits suppliers by improving their liquidity positions but also facilitates smoother operations for buyers. Through supply chain financing and dynamic discounting, stakeholders can collaboratively address working capital constraints, fostering a more resilient and efficient steel procurement process. This collective approach contributes to the overall stability and sustainability of the steel industry in India.‍

‍Conclusion‍

When buying steel raw materials in India, there are challenges such as price fluctuations, supply uncertainties, and working capital constraints. These factors can disrupt production and impact cash cycles for steel product manufacturers. While it's not possible to completely eliminate these challenges, solutions like consolidated procurement platforms, supply chain financing, and digitally integrated vendor networks help manage risks for buyers and suppliers. Adopting data-driven sourcing strategies and resilient supply chain practices can provide some protection against potential losses. Collaboration, especially from larger institutional buyers, is crucial to support smaller players by encouraging formalization and capability building through knowledge-sharing programs.

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