Contracting for Low Tension (LT) power & control cables

A Steel Major mandated buyjunction for the procurement of 300 types (A, B & C category items) of Low Tension (LT) power and control (PVC, XLPE and EPR insulated) cables. The quantity requirement was 600 km per annum.

The client expected buyjunction to:
  • Achieve better price over last year's purchase price
  • Reduce ordering and supply lead time
  • Create a sustainable long term commercial relationship with the suppliers
The scope of the mandate included the following:
  • Collating requirement from client's ERP and forming suitable and competitive negotiation lots
  • Preparing best-in-class RFQ to meet the business requirements
  • Floating RFQ and managing supplier responses
  • Collaborating with suppliers for lead time reduction options
  • Strategizing and conducting negotiation
  • Framing contract and selecting two vendors at the same price point for "A" category items

Historically the LT cables with higher purchase volumes (A category items) were procured under annual contracts and B & C category items were purchased on "Spot Buy" basis resulting in non-uniform pricing and issues with delivery of B & C items. buyjunction proposed to bring all cable buys under the scope of Contracting and the period was mutually decided to be of 3 years

Business challenges

Back to top
  • Pre-determining the quantity required over a period of 3 years for B & C category cables
  • Arriving at a price valid for 3 years for volatile commodities and reduce supply lead time.
  • Obtaining higher price due to longer contract period
  • Finalizing 2 vendors at same price point for "A" category cables
  • ulted in
  • No price justification available for elements of price matrix, scope for price revision was difficult resulting in dissatisfaction for the vendor and the client both.

Our approach

Back to top
  • Negotiation: Market lots were created to ensure equal focus to all category of items by the bidding suppliers.
  • Online price matching: L2 bidder in the negotiation event was persuaded for price matching for "A" category cables to mitigate supply risks during the tenure of the contract.
  • Scheduling Agreement for A category cables: Scheduling agreement was issued with defined quantity. The delivery date was to be informed as per the need by Delivery Orders (DOs).
  • Rate Contract for B & C category cables: Rate Contract mentioning total buy was issued with linkage with DOs.
  • Price review mechanism: A quarterly price review mechanism based on Copper (Cu) and Aluminium (Al) prices as per LME and IEEMA was introduced.
  • Stock-in-hand: The vendors were asked stock "A" category cables as per the lead time calculation of 3-4 weeks.

Benefits

Back to top
  • Price savings of 8% from the Last Purchase Price (LPP) after adjusting with the changes in Cu & Al prices
  • Similar discount structure was extended for both "A" and "B-C" category items thus ensuring price uniformity
  • Significant reduction in supply lead time of "A" category cables (3-4 weeks from 8 weeks)