Welding is the most common and important process for joining the metallic shapes in the fabrication industry. It may be done for production or maintenance purpose in the manufacturing establishment or on the project site. The process involves metallic fusion at a high temperature, which is near to the melting point of the basic metal of which the shapes or parts are made up. At the melting temperature, the metal (in the form of welding rod) is added to the gap between the two parts or shapes to be joined. The added metal gets fused to the parts or shapes to form a cohesive and uniform single joint. There is an alternative method ofjoining, which is known as riveting. However, it is not so reliable for leak-proof application. Moreover, it takes a longer time and is not cost-effective.
Welding electrode industry in India has grown rapidly during the swift phase of industrialization in the country in the last century. Almost all types of welding electrode varieties for all applications are manufactured in India. Gattu Welding Electrodes (GWE) was incorporated in July 1987, in technical and financial collaboration with a Swedish MNC, with an initial share capital of INR 50 million. Today, it employs 1000 people and recorded a sales turnover of INR 1500 million in 2001. The organization operates four manufacturing plants backed by a world-class R&D support from their collaborators. The company has received ISO 9000 and ISO 14000 certification for all the six factories. Gattu Welding Electrodes maintain a well-established all-India marketing and distribution network. GWE is managed by a group of well-qualified and experienced professionals; and is headed by the Managing Director who looks after the company’s day-to-day operations. GWE is the second largest player in the welding industry in India, having a 27 per cent market share. The other major players in the market are:
However, in the total welding electrode market of INR 7000 million in the country, the share of the unorganized sector is almost 50 per cent.
The sale of welding electrodes is strongly correlated with the steel demand in the country. Fresh capital investments and infrastructure projects are expected to lead to higher demand for GWE products. However, the unorganized sector has a strong presence in the Indian welding electrode industry due to the predominance of manual arc welding technology, which is not quality sensitive. There are around 20-25 brands available from the unorganized sector, which mostly cater to the needs of the lower-end price-conscious segment of the market. GWE’s principal activities are: manufacturing of welding electrodes; continuous electrodes/copper-coated wires; welding fluxes; gas and electric cutting and welding equipment and accessories; gas cylinder valves; medical equipment; and so on. According to the 2001 figures, respective share of different products in total revenues is: welding electrodes (49 per cent), welding equipment (28 per cent), continuous coated wires (12 per cent), medical equipment (five per cent), welding flux (four per cent), and gas valves (two per cent).
1. PRODUCT RANGE
GWE has the widest product range among all the competitors. Due to the strong R&D and close association with their collaborator, they have introduced many new products for welding applications. The other competitors are way behind in product development and mostly copy the GWE products after the market for a product is established. The product range of GWE covers the following:
Welding Electrodes
They manufacture the complete range of electrodes for almost all applications. The product range covers:
- Standard consumables Among these are included mild steel, general-purpose electrodes for structural steel welding; low hydrogen electrodes for critical application in pressure vessel and boiler welding; and gas fluxes for welding and brazing of cast iron, copper, aluminium and silver alloys.
- Special consumables GWE offers a complete range of electrodes for special applications, such as cellulose-coated electrodes, pipe welding electrodes and stainless steel electrodes. This range also includes continuous consumables such as MIG/MAG solid core and flux cored wire with flux combinations.
- Reclamation consumables Every year the Indian industry produces metal wastes worth billions. This waste is in the form of worn-out machineries and replaced-metal components that have failed in giving the proper service. With the industry being more and more competitive, cost saving has become the most effective tool to fight competition. Using the proven process of preventive maintenance welding, the replacement cost can be brought down to 30 per cent of the original. To satisfy the industry needs, GWE manufactures reclamation consumables like cast iron electrodes, hard-facing electrodes, filler wires and flux cored wires.
GWE Welding Equipment
The range covers arc welding equipment, gas welding equipment, metal cutting systems and other environmental system.
Medical Gas Equipment
This covers the critical life support equipment for use in hospitals. It produces anaesthesia machines, regulators and accessories etc.
Cutting Systems
The product range covers oxy-fuel, plasma, laser and water jet metal cutting machines. These are tailor made for specific applications in the industry.
2. MANUFACTURING FACILITY
GWE’s manufacturing facilities are located at four places across the country covering different product ranges. At the electrode factory in Kolkata, they manufacture general-purpose electrodes and reclamation electrode. At another facility in Kolkata welding equipments are produced. At the Nagpur factory they manufacture MIG (Metal Insert Gas) welding consumables, and at the Chennai factory they manufacture other welding consumables.
3. MARKET SEGMENTS
GWE has segmented the customers according to the electrode consumption pattern. The “lower segment” market consists of customers consuming less than Rs 25,000 worth of material per year; in the “middle segment” the yearly consumption is Rs 25,000-2,00,000; and in the “upper segment” the consumption is above Rs 2,00,000 per year. Currently, the number of customers in each of the above segments is 8500, 5000 and 1500 respectively. The large accounts constitute 70 per cent of the company’s sales turnover.
4. LOGISTICS NETWORK BEFORE 1987
Earlier, GWE had a distribution channel consisting of dealers and customers. The material used to flow from the factory to warehouses located at different places across the country. There were 83 warehouses, mostly smaller in size. GWE came to India through the acquisition of two major players in the welding industry. These two players operated the smaller warehouses which are now under GWE control. All GWE products from the factories were dispatched to the warehouses. The dealers used to dispatch the products to the customers from these warehouses. The inventory was under the ownership of the GWE and the stocks of products in the warehouse were kept according to the demand in the region. The primary transportation was the GWE’s responsibility, while the secondary transportation charges (from warehouse to the customer) were the dealer’s responsibility. These warehouses were operated by GWE, with the staff on their payroll.
The biggest drawback of this system was that the inventory at all warehouses was carried by GWE, thus blocking huge working capital. The level of inventory they had was to the tune of 85-87 days. In many states where sales were low (due to low market penetration), the stocks remained unsold for longer periods.
Moreover, because of improper maintenance of these warehouses, some stocks would get damaged or stolen. Low qualified people, who had no formal education or training in inventory and warehouse management, were in charge of these warehouses. They were basically local people who had mostly worked with the transporters. Each warehouse had one in-charge, two clerks and three helpers. The primary transportation cost was also a burden on the company’s profits. In 1996 the company incurred heavy losses due to the high cost of logistics operations and inventory-carrying cost. The management took a serious note of the situation and took aggressive steps to overcome the problem.
5. NEW LOGISTICS SYSTEM
GWE subsequently scrapped the warehousing system. According to the present system, the company does not keep any warehouse in the field to stock the products. The firm decided to have mother warehouses at the four factories of the company; from where the materials were to be dispatched to the dealers directly.
The management reviewed the dealer network and found that the market can be effectively served with lower distribution cost through a lesser number of big dealers. They have reduced the numbers of dealers to 160. These dealers take the customers’ requirements and pass it on to the logistics department of the factory. Each factory has its own logistics department to take care of the inventory planning, maintenance and dispatch as per the market requirement. The company organizes its marketing through four regional offices that are responsible for sales and dealer control in their region. The current marketing set-up of the company is as follows:
In the new system, the dealer will be responsible for the supply of material to the customer in his territory. He will send the requirement to the logistics department of the respective factories for the product manufactured therein and the material will be dispatched to the dealer. The dealer will store the material in his warehouse till it is further dispatched to the customer. The ownership of the material is now with the dealer. The marketing engineer will facilitate the sales generation and extend the application support to the dealer for generating the sale from the customers in his territory. The primary transportation charges from the factory to the dealer and secondary transportation charges from the dealer to the customer are passed on to the customer’s account for recovery. The dealer will be responsible for payment collections from the customers. The flaw in the new system is that, in case a dealer gets an order for 50 cases of a certain product, they will have to wait till further orders come in from other customers, so that the dealer can ask for a full-load truck from the factory. Otherwise, the freight charges in excess of those committed to the customer will be to the dealer’s account. With the new system, the firm’s inventory level has drastically come down to 35 days. The company started earning profits from the year 2000. The financial results of the company are as follows:
6. PACKAGING
The company has improved on the packaging. There are three sizes of electrodes: 4 mm, 3.15 mm and 2.5 mm, which go into packs containing 55, 65 and 85 numbers respectively. One case contains six boxes of the above sizes. These cases are loaded on to the transportation vehicles for dispatches to the dealers. The entire packaging operation is outsourced in all the four factories.
7. CURRENT PROBLEMS
With the new system the company could manage to bring down the inventory to more than half.
However, there are a few major problems the firm is facing.
- Business from customers is totally in the hands of dealers. No customer can strike a business deal directly with GWE. In such cases, the dealers who do not deal exclusively in GWE products (as per the industry practice) promote other brands that fetch them handsome profits.
- GWE has no direct linkage with customers. This is creating the barriers to free flow of market information.
- For the dispatches from dealers to the end-customer GWE has no control, and in many cases, although the material has been dispatched from factory on time, it does not reach the customer in time.
- The firm is online with their regional offices. However, the dealer connectivity to the GWE for information flow is poor.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.
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