The chase for quality raw materials

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: A number of mails have been received from SMEs on the issue of access to raw material. This raises questions on the present state of supply chains. The inefficiencies in India are manifest in all the three dimensions of raw material markets: quality, quantity and prices.

Post-liberalisation, the problems related to availability have largely disappeared, barring occasional shortages of iron and steel. But the challenges of quality and price have become prominent. This article analyses the issue of quality of raw materials.

For SMEs engaged in manufacturing and job work, the four major raw materials are iron and steel, copper, aluminum and plastic. The number of SMEs dependent on these are the largest after those dependent on agro-based inputs and textiles. There are over 1.25 lakh registered SSI units directly involved in manufacturing or processing of products based on ferrous and non-ferrous metals. The number of units in the unorganised sector in this segment is almost 10 times. The raw materials are produced by both the public and private sectors: such as Sail, Tatas, RINL, Bhushan, Hindalco, Balco, Nalco, HCL, Sterlite, Indo-Gulf, RIL etc. The second set of supplies comes from the recyclers—a sizeable segment dominated by small producers. The third set comes from imports.

Almost the entire requirement of raw material of the sector is met through small traders. Only a small fraction of the sector gets the material from mills, or their authorised distributors. Various reasons are given by the players: mills and their authorised dealers say that dealing with a large number of small customers increases their transaction costs, whereas small companies complain that the mills supply prime material overseas or to their large customers under long-term contracts and the seconds material is offloaded to traders in lots.