Three Steps for Sustainable Cost Reduction: Steel Companies Set their Sights on High Performance

Steelmakers are under intense pressure to improve profitability. Market growth has slowed, raw material prices remain elevated and steelmakers have less market power to increase prices. Steelmakers traditionally have responded by launching cost-reduction projects. In the past, these efforts have tended to produce short-term improvements, but experience suggests effectiveness wanes as management attention is diverted to other priorities.

The key challenge is how to sustain cost reduction. By consistently adhering to a three-stage framework, not only in the cost-take-out phase but also in ongoing operations, steel leaders can achieve dramatic, sustainable improvements and position their companies for high performance.

Experience demonstrates that a three-stage approach enables steel companies to build from short-term cost savings to achievement of sustainable benefits:

1. Quick wins: Identify opportunities for immediate cost reduction. Achieve quick wins to self-fund the program and build confidence among stakeholders in cost relief.

2. Optimize: Run current operations more efficiently. Improve business processes, reduce non-value-added tasks and accelerate effective decision making to decrease average unit costs.

3. Sustain: Achieve operational and cultural changes by shifting the focus to an efficient and effective operating model. Drive improvements in labor costs through automation and efficiencies. Reduce operating costs per ton through more streamlined processes. Implement innovative sourcing strategies. Reinforce sustainable cost reduction through capability building and training.

Mehul Jain is a senior manager at Accenture based in Chicago. His experience includes more than 10 years of work across the spectrum of mergers and acquisitions, manufacturing and supply chain strategy. This work has primarily centered on initiatives for metals, forest products and building materials companies. Jain received a master of business administration from the University of Illinois.

Andrea Paciaroni is a New York-based manager in the Accenture Resources Supply Chain Strategy practice. His seven years of experience includes operational excellence, supply chain analytics, inventory management, sales and operations planning, and strategic sourcing. He received a bachelor’s degree in business administration with a major in operations management from Bocconi University in Milan, Italy.