Supply Chain Optimization to Restore Steel Company Profitability

To restore profitability and become sustainable, the Chinese steel industry faces three key imperatives:

• It must pursue upstream supply chain optimization through the appropriate acquisition and diligent development of mines.

• It must pursue downstream supply chain optimization through the restructuring of the trading and distribution sector to support greater mill control over the primary market channels.

• It must pursue midstream optimization through industry consolidation.

These imperatives are interconnected and interdependent; the industry will not be able to achieve success in one area without significant progress in the other two. Companies that succeed in upstream or downstream optimization will attain competitive advantages, which will give them the stronger position in merger and acquisition negotiations. Yet without strong merger integration capabilities, they will not succeed in maintaining that leadership. And larger, financially stronger industry leaders are essential for the upstream and downstream supply chains to be optimized in the next few years.

While optimization in all three supply chain stages is the goal for most steel companies, the reality is that not all companies will have the resources or skills to prevail in all three stages. Individual companies may be better suited to focus on either upstream, downstream or midstream optimization as the primary path for restoring profitability. From the overall perspective, identifying and promoting specific areas of capabilities among steel companies and guiding the consolidation process along these more “natural” paths will enable the Chinese steel industry to more rapidly reach its goal of an optimized, sustainable and global-leading industry.

John E. Lichtenstein is the managing director of the Accenture Metals industry group and leads the Accenture Natural Resources group (metals, mining, forest products and building materials) for the Asia Pacific region. Based in Beijing, Mr. Lichtenstein has more than 25 years of experience as an industry executive and consultant to the global metals and mining industries. He works with leading companies in strategy and organization, technology, mergers and acquisitions and business transformation.

He is a recognized expert on global metals industry issues and has written numerous articles for industry publications and is frequently quoted in the financial press. He regularly appears as a featured speaker at events sponsored by the World Steel Association, the AISI, the Metals Service Center Institute, Metal Bulletin, World Steel Dynamics, the Brazilian Steel Institute, the China Iron and Steel Association and others.