TISCO - THE
WORLD'S MOST COST-EFFECTIVE STEEL PLANT
BACKGROUND NOTE
continued from page 1
IMPLEMENTING BEST PRACTICES
In 1999-2001, TISCO took measures to reduce costs further by
adopting innovative strategies and other cost-cutting exercises. For example, TISCO stopped using manganese, an expensive metal used to increase the strength
and flexibility of steel. The company made efforts to reduce its product
delivery time from 3-4 weeks in 1998 to 2 weeks in 2000. The company aimed to
further reduce the time to one week.
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TISCO also took steps to reduce its manpower costs.
Between 1996 and 2000, TISCO reduced its workforce from 78,000 to 40,000
employees. Analysts opined that cutting its workforce by 38,000 employees
was not an easy job and the company was able to do it with a lot of
communication with employees. TISCO had adopted Performance Ethic
Programme (PEP), under which, it planned to promote hardworking young
people to higher positions depending on their performance, rather than
following the convention of seniority. This exercise was expected to cut
the management staff from 4000 to 3000.
PEP had two core elements. Firstly, it proposed a new organizational
structure, which was expected to foster growth businesses, introduce more
decision-making flexibility, clear accountability, and encourage teamwork
among the managers and the workforce. Secondly, PEP proposed to introduce
a Performance Management System (PMS). |
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It would identify and reward strong performers, and also offer development
opportunities for each employee. PMS would also ensure that every employee's
job profile was clearly defined. By introducing PMS, TISCO wanted to make
performance appraisals transparent and fair and reward the good performers.
The company also planned to introduce a new compensation package based on
performance from November 2001. Muthuraman explained the benefits of PEP,
"Youngsters are getting higher salary than some of the seniors, and after the
restructuring, the average age of the managers has fallen by 10 years. Through
PEP, TISCO also reduced the hierarchical levels from 13 to 5."
In a bid to reduce costs further, TISCO used IT as a strategic tool. In 1999,
the company formed a small cross-functional in-house team consisting of
consultants from Arthur D Little and IBM Global Services. The team was
responsible for re-designing two core business processes - order generation and
fulfillment and marketing development. The program began with a study on
cost-competitiveness. The aim of the program was to enhance customer focus
enabling better credit control and reduction of stocks, thereby reducing the
costs. After considering several packages, the team decided to use SAP R/3.
TISCO wanted the team - also known as ASSET (Achieve Success through SAP
Enabled Transformation) - to integrate SAP into the existing information system
and make it compatible with future SAP implementations.
After SAP solutions were introduced in TISCO, the business processes became
more efficient. It also improved customer service and productivity, and reduced
costs. The introduction of SAP also decreased manpower cost from more than US $
200 per ton in 1998 to about US $ 140 per ton in 2000. There was a significant
reduction in inventory the carrying cost, from Rs 190 per ton in 1999 to Rs 155
per ton by 2000. There were also significant cost savings through efficient
management of resources.
THE FUTURE
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This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources.
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