TISCO: The World's Most Cost Effective Steel Plant

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Case Details:

Case Code : OPER011
Case Length : 12 Pages
Period : 1980 - 2002
Organization : TISCO
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Steel

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note Contd...

By April 2001, TISCO had emerged as the world's lowest cost producer of steel. TISCO's operating cost at the 'hot metal' (liquid) stage was $75 per tonne. The company's cost per tonne of finished steel stood at $152 for the financial year ending March 2001.

The World Steel Dynamics (WSD)6, in a report stated, "Tata Steel is a 'world class' steel maker – the only in India – and one of the few companies in the world with such a standing. This view point is based on a variety of reasons such as low operating costs, special company culture, good profitability, etc." WSD identified 12 companies as World Class Steel Makers, and ranked them based on certain factors7 (Refer Table I).

Operations Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies

Analysts felt that TISCO's achievement of becoming the lowest cost producer of steel was mostly attributed to its implementation of TOP (Total Operational Performance), a program that focused on improving TISCO's operational practices and rationalizing procurement costs.

The 'Top' Program

In the early 1990s, TISCO appointed McKinsey and Booz-Allen & Hamilton to study its operations and suggest ways to cut costs. Irani explained the rationale, "Cost-cutting measures are more important in the present situation where one can no longer control steel prices which are dictated by international markets." The consultants suggested TISCO to focus on various components affecting the cost of steel, which included cost of raw materials, cost of conversion, fuel rate in the blast furnace and mining of coal. TISCO was advised to use the most modern technologies to cut costs further...

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6] A renowned industry analyst firm based in the US.

7] Operating costs; ownership of low-cost ore and coal; favorable location for procuring raw materials; skilled and productive workforce; price paid for electricity; high quality and niche products; degree of 'pricing power' with large steel buyers; dominant in region; balance sheet; borrowed funds and equity on a favorable basis; management is experienced, aggressive, proactive; low legacy (retired worker) costs; ongoing cost cutting efforts; cost position of nearby competitors; owns downstream steel-using businesses; domestic market growth rate; proportion of domestic sales.


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