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POSCO’s international purchasing strategy

IPPRMS10 – Martin Hemmert

Table of Content
Steel Inside!! 4
The Korean Steel industry and POSCO 4
Posco’s main competitors 5
The steel market & POSCO 5
The new Pricing System 5
5-Forces-Analysis & Supply Strategy of POSCO 6
POSCO’s International Sourcing Strategy & Recommendations 9
Wrap-up of establishedsolutions 9
Integrating procurement in the information system 11
AT Kearney’s Supply Strategies applied to the POSCO Case 12
Exhibits & Tables 13
Sources 18

Steel Inside!!
The Korean Steel industry and POSCO
Steel is probably one of the most important production inputs that we have nowadays. Many other industries depending on steel as a main input like the car or construction sector. Thedeveloped countries have a lot of steel-intensive manufacturing and creating a strong demand for steel. In the Korean metal industry, the revenues of iron and steel selling are completely dominating the industry. Posco’s creation in1968 and its development in the 1970’s occurred at the same time as the development of the country.
There is a large range of steel products but for our case study itis more convenient to talk about the steel products (hot rolled, cold rolled products, plates, wire rods, silicon steel sheets and stainless steel products) as a whole.
Posco is traded on the London and New York exchange market since the 1990’s (under the name of Pohang until 2002). It has signed strategic contracts with Nippon Steel in 2001 in order to put together their effort in technologicaldevelopment and in raw material procurement. Since this year Posco agreed on other strategic collaborations with GM Daewoo, Hyundai Heavy Industries and Dongkuk Steel Mill to name only some of them. The company is strongly centered on research and development.
Today Posco employs around 30,000 persons. and had net income of 4.35 trillion Korean Won in 2008.

Posco’s main competitors
The threemain competitors are the three biggest steel makers in value: ArcelorMittal (Luxembourg), Nippon Steel (Japan), Boa Steel (China). Posco is the fourth biggest steel producer on the global market..
Since the consolidation of Arcelor and Mittal in 2006, they possess around 10% of the global steel production capacityand are the undisputed leader on the market far before the other producers.
Itappears evident that the steel product produced by those companies are not very differentiated, therefore the competition takes plays on the price level. The markets served by the Asian companies are quite different to the European countries where the market reached maturity. Furthermore, exportation is limited by the production capacities of the companies. If Posco is one the most efficient andprofitable among its competitors, Chinese still producers however are threatening the Korean company manufacturing much cheaper steel due to low cost procurement secured within China.

The steel market & POSCO
The new Pricing System
Until recently iron-ore suppliers and steel makers referred to a benchmark price system where price was fixed once a year. The biggest iron-ore miners and steelmakers settled the price in private deals. And the first deal set up was used as benchmark for the following negotiations. The recent change (on April 1st) was entailed by the impossibility to find an agreement in the 2009 meetings in which the Chinese Iron and Steel Association was involved.
Concurrently the spot market coexisted with the benchmark system and the disparity between fixed andfloating rate made some miners pushing their customer to purchase the commodity on the spot market. Indeed, depending on the market conditions miners could lose revenue on their products when selling them to benchmark prices.
In the new system, the price will be negotiated quarterly and therefore allows to be more synchronized with the floating market rate and currently permits the iron-ore producers...
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