Skip to main content Skip to Footer

BLOG


July 15, 2016
A strategy for steel company survival
By: Dr. Andrew Zoryk

I was fortunate enough to recently attend the annual American Metal Market (AMM) and World Steel Dynamics (WSD) Steel Success Strategies XXXI conference in New York City. A dominant theme of the conference was the current state of the global steel industry given four key factors—depressed steel demand and prices; overcapacity (of approximately 700 million tonnes1); the reaction of Chinese steel producers to export their excess capacity at low prices; and consequently, the need to address the market imbalance through capacity reduction and create a “level playing field.”

Whilst all of these tensions are (hopefully) resolving themselves, steel companies still need to look at how they can remain profitable and gain competitive advantage—regardless of the region of the world in which they are located. As I have mentioned in previous blogs, steel companies are now starting to look at how to become better equipped to face the future through growing core business capabilities, coupled with using enterprise resource planning (ERP) and digital technologies to become high velocity enterprises.

As one example, improvements in core processes and technology can clearly play a role in the areas of order-to-cash processes and supply chain. Based on my experiences, many steel companies are still struggling to be effective and enable true business flexibility and competitiveness. I’m familiar with one steel producer that was facing the following situation in managing its supply chain:

  • Average actual production lead times were typically double the planned standard due to lack of coordinated material and capacity production planning.

  • On-time and in-full delivery of products was often at or below 50 percent with high levels of variability, driven by the focus on a quantity-based (instead of order-based) planning process.

  • Stock levels of key steelmaking raw materials (e.g., ferroalloys) were on average more than 10 days (of cover) higher than industry leading practice due to poor sales forecast accuracy.

  • Finished steel product inventory for customer consignment stocks was typically 15 to 20 days too high when compared to industry best practice, driven by a lack of visibility to planned order completion dates.

Does this sound familiar?

A few of the root causes for this performance included the following: misaligned planning objectives performed in functional silos; misalignment of customer order intake with supply plans; order delivery promises that were not based on a realistic evaluation of available material and capacity; and infeasible production plans for downstream finishing units.

Again, this situation is not uncommon for many steel companies. Typically, this complexity and misalignment has arisen over many years—driven by the expansion of a company’s production facilities, more demanding product specifications and, most recently, perhaps a decrease in order batch sizes. In order for a steel company to remain competitive, such issues cannot be ignored, and clear action plans need to be put in place to address them. Once these issues are addressed, a steel company can then truly maximize the benefit of enabling competitive differentiation through e-commerce channels and differentiated service-level models.

Together with this, a key question that steel companies should consider is: What is my true potential profitability? Or, in other words, by taking improvement actions in different areas of my business, how much incremental business value can I derive (and thereby increase my resilience to the market and profitability)? A structured roadmap approach to business and technology improvements will help support this analysis.

In summary, the external market pressures felt by steel companies look set to continue—at least in the near term—and the global issues facing the industry will not be resolved overnight. This is evident by the fact that AMM and WSD, the co-sponsors of the Steel Success Strategies conference, have renamed next year’s event to be Steel Survival Strategies, reflecting the threats that industry players are facing and will continue to face for some time to come. It will be interesting to see what actions for survival are taken over the next twelve months and how companies are preparing themselves to maximize their profitability and competitiveness as well as take advantage of a future steel industry recovery.


Footnotes:
1© OECD 2016, ʺHigh-level meeting on excess capacity in steel sector, 17:30 news briefing, Monday 18 April, Palais D’Egmont, Brussels,ʺ OECD Publishing, Paris, http://www.oecd.org/newsroom/high-level-meeting-on-excess-capacity-in-steel-sector.htm.

Topics highlighted

Natural Resources

Popular Tags

    More blogs on this topic

      Archive