Carrefour's Competitive Strategy- Cost Leadership and Differentiation: A Case Study
The relationship between cost leadership competitive strategy and firm performance: A mediating role of quality management
Manjeet Kharub, Rahul S. Mor, Rajiv Sharma
Journal of Manufacturing Technology Management
ISSN: 1741-038X
Publication date: 21 October 2019
Kharub, M., Mor, R. and Sharma, R. (2019), "The relationship between cost leadership competitive strategy and firm performance: A mediating role of quality management", Journal of Manufacturing Technology Management, Vol. 30 No. 6, pp. 920-936.
JSW
Key priority area - Cost leadership & financial discipline
JSW Steel follows a robust system on capital allocation and judiciously allocates capital amongst various competing capital expenditure projects across locations, with the least payback periods and compliance to environment and safety related aspects. These projects include investments in strategic expansion, acquisitions, increasing value-added capacity, efficiency and cost saving related outlay. Accordingly, every capital expenditure and mergers and acquisitions, are calibrated to ensure that the leverage ratios are within the acceptable levels.
Given that the Company has launched an extensive capacity upgradation plan, it regularly considers financing and refinancing opportunities intended to diversify its obligations, reduce interest cost and lengthen the maturity profile of its indebtedness.
“JSW Steel has a combination of rupee and foreign currency loans with an appropriate mix of fixed and floating interest rates of different tenures. This strategy has helped the Company de-risk the debt profile substantially and maintain healthy leverage ratios. The Board also ensures that a stringent governance model is adhered to when it comes to cost and budgetary control. Our diversified debt profile, reduced interest cost and proactive engagement with both debt and equity investors have supported expansion projects and helped pursue strategic acquisitions at minimum risk. Thus, leading to consistent growth and helping gain investor and stakeholder confidence.”
Rajeev Pai
Chief Financial Officer
In order to implement this strategy, the Company’s diversified sources of financing include a right mix of rupee and foreign currency denominated debt, External Commercial Borrowings (ECB) and Non-Convertible Debentures (NCD). The Company also leverages opportunities to raise finance through structured trade solutions to diversify its pool of liquidity. In March 2019, it raised US$700 million through Advance Payment and Supply Agreement (APSA).
The Company consistently maintains a competitive borrowing rate by adopting appropriate balance between fixed and floating interest rate, in addition to diversified sourcing of funds. Further, as a risk mitigation strategy, floating rate Foreign Currency Loans (FCL) have been hedged through Interest Rate Swap (IRS).
In order to sufficiently safeguard against currency fluctuations, the Company hedges exchange rate risk under its trade portfolio and capital account transactions. JSW Steel has a policy to hedge cash flows up to a specific tenure using a mix of derivative instruments and options. The Company’s hedging strategy for commodity is based on its procurement schedule, price risk and economic benefits through swaps. Depending on market conditions, commodity hedges may extend beyond the financial year. The Group has a policy of hedging upto a maximum of 25% of its consumption.
A strict adherence to these financial management systems and risk control measures has helped the Company achieve a higher Return on Capital Employed (RoCE), correct market perceptions, and has resulted into growth in market capitalisation as well as better credit ratings.
JSW Steel firmly believes that cost leadership is an accumulation of innovation, better execution and ensuring customer satisfaction and competitive advantage across all functions, every single day.
At `3,500 crore/MnT, JSW Steel has one of the lowest capacity expansion costs. The Company has achieved this on the back of the efficiency projects it has undertaken, while the in-house skill and expertise have reduced the time taken to complete these projects.
Today, the Company has a steady ROCE, besides having one of the lowest financial leverage in Asia and competitive conversion costs. JSW Steel depends on domestic as well as international suppliers for meeting its raw material requirements; however, it prioritises domestic sourcing over imports. In the reporting year, the Company procured 70% of iron ore from domestic sources.
In the last fiscal, JSW Steel strategically focussed on reducing costs by working on the following areas as a part of its continuous improvement journey:
Commissioning of coke oven battery at Dolvi to eliminate procurement of coke
Diversifying the coal procurement basket and optimising coal cost by dynamic coal blends
Reducing logistics cost by port optimisation and usage of cape vessels to reduce freight costs
Increasing Pulverised Coal Injection (PCI) to reduce fuel consumption
Operationalised three iron ore mines and using captive iron ore, thereby reducing dependency on imported iron ore
Logistics infrastructure
Due to the high volumes of incoming raw material and outgoing finished goods that the Company handles, logistics is one of the major cost centres for JSW Steel. In order to optimise its logistics process and improve costs, special focus is being placed on streamlining the existing systems using technology.
Streamlining of Dolvi inbound supply chain
Digital tools such as dashboards are used to monitor and streamline the Company's end-to-end supply chain. The dashboard showcases real-time view from shipping, ship unloading and Raw Material Handling System (RMHS) to the plant.
This has resulted in optimum ordering and ship schedule, optimum barge allocation, minimum barge turnaround time, maximum equipment utilisation and real-time scheduling of RMHS-Jetty-Plant system.
Conveyor system for material handling
Until recently, bulk materials such as iron ore, iron ore fines, coal, limestone and dolomite were being received through wagon tippler arrangement from where they were carried to the storage yard through trucks. With a view to limit the movement of these trucks, JSW Steel installed a 24-km-long pipe conveyor belt in Vijayanagar. This has helped in saving fuel and reducing carbon emissions and dust generation from the roads, while improving safety.
In addition to the conveyor system for the procured bulk materials, proposals have also been made for conveyor systems for handling raw materials such as BF return fines, coke fines, coal, coke, etc.
