Outperforming the competition through execution excellence in the steel industry

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Crude steel production (000 MT) Revenue per tonne (US$/t)

Capacity utilization rate (%) EBITDA per tonne (US$/t)

‘80

1,600

1,400

1,200

1,000

800

600

44%

18%12%8%7%

13%

All OtherNA

CIS

EU

Other Asia

China

60%

65%

70%

75%

85%

90%

’10’09’08’07’06’05’04’03’02’01’00

0

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’06’05’00’95 ’10’09’08’07

020

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180

’95 ’10’09’08’07’06’05’00

80%

’11 ’12 ’13’12’11

40

80

120

160

’13’12’11‘82 ‘84 ‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12

Figure 1. The steel industry continues to endure great cyclicality, both operationally and financially, which saps resources and makes sustained improvement efforts extremely difficult to maintain.

Source: World Steel Association, Accenture Analysis, WSD Core Report – Nov 2010.

Operational excellence can set an organization apart from the competition. But in today’s environment, steel companies often find it difficult to achieve this excellence and use it to gain a distinct advantage.

In the steel industry, operational excellence is becoming more and more important. Ongoing consolidation and globalization make greater efficiency a must. Increasingly sophisticated customers are raising the bar for both quality and service. High volatility and pricing fluctuations in both raw materials and steel are making agility vital. Growing demand for exotic grades, small batches and just-in-time delivery are creating challenges in terms of both efficiency and profitability. And stricter regulations are making safe, environmentally sound operations more important than ever. All these market forces are driving up costs—at a time when companies are trying to reduce costs in order to maintain profitability (see Figure 1).

To meet these challenges, many steel companies have invested in creating structural advantage—in enhancing plants, equipment and technology to increase production, throughput and customer responsiveness while also hopefully reducing costs. These investments have often been significant. But in many cases, steel companies have not seen the return on investments that they have expected—or the operational excellence they need.

The reasons for this shortfall are complex, but often companies have not taken the rigorous steps needed to make sure they can fully leverage the structural investments. That is, they have not built the ability to execute well on top of their structural platform—and so efforts to drive operational excellence fall short.

In essence, operational excellence needs to be based on both structural advantage and execution excellence—and steel companies are often missing this second factor. Execution excellence is key to meeting today’s operational challenges and getting the most out of structural investments—and steel companies can take advantage of a number of techniques to build it systematically. Experience has shown that by doing so, they can achieve short- and long-term benefits, and develop the operational excellence that will help outperform competitors and let them move ahead on the journey to being a high-performance business.

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The four pillars of execution excellence

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Achieving execution excellence can involve a variety of initiatives, and the right improvements will depend on a company’s specific situation. However, Accenture has found that execution excellence relies on four fundamental pillars, or principles, that can be used to guide efforts. These pillars are:

• Simplicity. Many of the challenges facing the metals industry bring greater complexity to processes. This complexity strangles the organization, driving up costs and delays. Simplicity is achieved by reducing duplication, rework and low customer value-added work; clarifying decision making; and standardizing and harmonizing processes.

• Speed. To keep up with changing demand and customer requirements, steel companies need to accelerate the movement of value-added information, materials and/or products through manufacturing processes. The objective: Reduce cycle times, increase flexibility, shorten correction loops and reduce delays across the enterprise.

• Focus. This means verifying that limited resources are being used to the appropriate advantage, and strategic and structural issues are given priority. It also requires the targeted value of

an initiative to be clearly defined, with a bias toward taking action, rather than undue deliberation, in pursuing improvements. A key element in this area is the use of quick-win initiatives that produce significant results in a relatively short time and involve low-risk, low-cost activities. Such initiatives demonstrate to the entire organization that improvements can sometimes be made in small, rapid steps that do not require exhaustive analysis—helping to build a bias toward action.

• Discipline. Companies can take a disciplined approach to improving execution by building the concept of managing for performance into the organization. The organization should be aligned toward delivering economic profit; incorporate fact-based management into daily operations; and weave the continuous process of measuring, reporting and improving into every core process—all of which help build an execution-oriented culture. Discipline also entails rigorous standardization of work processes, executed by individuals with consistent skills.

By emphasizing these four pillars, companies have seen benefits ranging from higher quality and reliability to increased flexibility, improved customer satisfaction and reduced operating costs.

For example, in Accenture’s experience, execution excellence initiatives have helped companies:

• Reduce defects/rework by up to 75 percent.

• Reduce organization-wide inventory by up to 30 percent.

• Cut operating costs by up to 25 percent.

• Increase productivity by up to 35 percent.

• Improve lead times by up to 50 percent.

• Reduce process variability by up to 90 percent.

• Reduce customer complaints by up to 25 percent.

In pursuing execution excellence, companies can undertake many different performance improvement initiatives that are of one of two types—either targeted interventions or programmatic changes. These two types of change initiatives complement one another, and together they help achieve both rapid and long-term results (see Figure 2).

Go fast

Bene

fit

Time3 Weeks 9 Months

47% increase in slab pile quality

11% reduction in Vacuum Degasser

cycle time

Site-wide throughput increase of 4% and

cost reduction of 6% 5-9% reduction in

fuel cost across multiple furnaces

Targeted intervention Programmatic change

Mill-wide profitability boost of $180M/yr or 9% of annual spend

Deliver resultsCreate momentum Build capabilities

Figure 2. With a bias toward action and sustainability of performance improvement, Targeted Intervention to Programmatic Change achieves results in line with the investment.

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The targeted intervention approach

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Targeted change initiatives address well-defined execution issues, focusing on specific improvements in areas such as cost, capacity, throughput or quality.

For example, targeted efforts might be used when companies want to reduce emissions in coke ovens, improve temperature control in steelmaking, increase alloy additions, debottleneck a processing step or reduce quality issues in finishing operations. Targeted change efforts aim to deliver rapid improvements, but they do so by building capabilities that will continue to provide benefits over the longer term.

Typical targeted initiatives include automation and process control interventions. These use sophisticated control-loop assessment and tuning tools to drive variation out of processes, which in turn drives reductions in costs and increases in productivity.

On another front, marginal economics methodologies use detailed analytics of customer/pricing data along with shop floor diagnostics to enhance pricing, cost to serve, product/customer mix and go-to-market processes. When combined, these help with short-term optimization of manufacturing and supply chain activities.

A key technique for targeted change is the Kaizen event. Led by a Lean Six Sigma Master Black Belt or Kaizen leader, a Kaizen is a rigorous process that brings together teams of operational people to

quickly develop and implement solutions that address process problems, or reduce waste and inefficiencies. These events are designed to produce rapid results and are typically completed in just a few weeks. By assembling and empowering a team of people who have a full, hands-on understanding of the process in question, the Kaizen approach leads to solutions that are practical and realistic. While generating value in the short term, it also helps instill a continuous-improvement mindset in the organization.

Kaizens can be used for problem solving in two distinct ways. Discovery Kaizens can be used when the root causes of a broad problem are not clear, drawing on the knowledge and experience of operational teams to uncover those causes. The Discovery Kaizen focuses on finding specific areas for improvement, along with quick-win solutions to many issues. In contrast, Rapid Improvement Kaizens are applied in situations where an operational problem is better understood and has a narrower scope; these types of Kaizen events typically are used when the company wants to find a solution quickly. In just a few weeks, a solution can be identified and many, if not all, the necessary changes made to correct root-cause problems.

A Kaizen event helps overcome resistance to change in the organization. Resistance can be difficult to address and even experienced change agents can be worn down by it. With the Kaizen approach, the change in question has the buy-in and support of the people who operate the process, because they are the force behind the change. Thus, a Kaizen can often break the cycle of resistance—and in doing so, the event will pave the way for further improvements beyond the specific problem being addressed.

Experience has shown the Kaizen methodology can be applied very successfully to contractor and outage management. By examining the reasons for contractor usage, the root causes of the key drivers can be addressed, which can achieve a 10 to 15 percent reduction in overall contractor costs.

Due to clear cost and risk considerations, shutdown planning and execution is an important area of investment to drive value from execution excellence (see Figure 3).

Rapid improvement KaizenA large steel maker was facing increasing demand for low carbon steel, which was beginning to interfere with the ability to make customer shipments on time. Using a Rapid Improvement Kaizen event, the company:

• Clearly identified bottlenecks, delays and non-value-added activities in the current process.

• Pinpointed root-cause drivers of process cycle time variability.

• Identified issues that were being caused by operating procedures at upstream and downstream processing units.

When these problems were addressed, the company saw total cycle time improvements of more than 11 percent, essentially providing the capacity to

address current and near-term customer demand. In addition, the effort produced a corresponding 11 percent increase in caster speed to keep pace with the improvements in the company’s degasser operation.

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Discovery KaizenA large steel producer was struggling to address customer demand in a continuous casting operation. In order to identify root-cause issues, it conducted a Discovery Kaizen with a cross-functional team from across the steel shop. This Kaizen used Lean Six Sigma tools to find the drivers of problems, and then to develop, quantify and prioritize solutions. Changes encompassed people, processes and technology, and included better

communication at key process points, reduction of redundant testing, improved preventive maintenance, automation of data input, and reassignment of personnel to expand supervisory coverage.

The effort identified $1.4 million in quick-win yield improvements that would cost nothing to implement. Another $2.9 million in identified annual yield improvements would

carry implementation costs of just $156,000. And $2.6 million in another set of potential yield improvements would require a total investment of approximately $1.5 million. Overall, the Discovery Kaizen—which took only three weeks to complete—identified a total of $7.1 million in yield improvements.

A recent project Accenture supported in this area set out to determine important success factors for repeatable shutdown and maintenance management.

Accenture´s work with the client started with the initiation of a workshop of multi-disciplined participants to develop a shutdown business process model, with explicit benchmark measures, objectives and targets for improvement. Managing the shutdown process required establishing a milestone plan for all preparation activities (from 18 months pre-shutdown through the event and post-shutdown), and creating due dates and responsibilities for specific tasks and deliverables across 11 performance dimensions.

Scope challenge/optimization workshops were conducted 12 months prior to the major shutdown to review methodically the scope, scheduling, risk and associated costs for execution activities. The result was a quality shutdown playbook, which set out detailed procedures for critical and non-critical path tasks/work packages, operational shifts, manpower, safety, and equipment covering the full cycle of pre-shutdown activities (e.g., scaffold erection, pre-fabrications, materials delivery, etc.). The playbook also included information on decommissioning and decontamination, maintenance, projects, inspection, commissioning, and post-shutdown work.

The results were profound. The workshops facilitated internal alignment and common understanding of activities, performance metrics, resourcing, budgets,

Outage readiness review #2

-3 months

Shutdown Execution

Outage premise workshop stetting

Outage strategy workshop

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+3 months

-20 months

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Figure 3. Shutdown execution is a repetitive process that drives improvement through each cycle.

and the scope of the shutdown into a single overview document. Streamlining of critical-path activities via Lean thinking—and partly from an appreciation of the value of a project control system together with investment in the skills for shutdown scheduling—reduced the shutdown time by 4.5 days. Better control of shutdown scope and scheduling saved 23 percent in cost. Specifically, significant improvements were made with

respect to external third parties in the areas of safety, reduction of rework, and lower costs by using contractors more effectively in a range of contract types—with an overall savings of 15 percent on external spend alone.

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The programmatic change approach

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Programmatic change addresses the bigger picture, taking on systemic issues with broad-based improvements across an operating site or network of assets. These initiatives aim to deliver solutions that are able to address both current market conditions and future strategic objectives.

A programmatic change effort might be appropriate when a company is trying to improve a finishing operation’s overall profitability; when an integrated mill needs to reduce defect rates and raise on-time delivery performance; when an unreliable operation needs a comprehensive improvement in maintenance and reliability performance; or when a complex mill wants to increase flexibility so that it can adjust operations to handle order fluctuations, without eroding margins.

In general, programmatic change is a comprehensive attack on fundamental barriers that are impairing execution. There are several programmatic approaches that steel companies can use:

Step-change methodologyThis is a structured and facilitated process for stimulating, developing, evaluating and implementing ideas for improving profitability on an ongoing basis.

The process begins with the capture of new, innovative ideas, which are tracked in a centralized database. This database makes it easy to share and transfer ideas across teams and facilities, promotes cross-functional cooperation, and lets the organization document progress when ideas are implemented. Ideas are vetted and prioritized based on a fact-based analysis of potential savings and risk-reward criteria. As improvements are implemented, scorecards and reports keep team members up to date on the project status.

Step-change efforts can help steel companies achieve significant results. For example, in actual programs with Accenture clients, the approach has led to cash cost reductions of up to 22 percent across mill and converting operations, up to four-point improvements in return on invested capital, and significant improvements in overall equipment effectiveness metrics and employee satisfaction.

Lean transformationLean manufacturing has been effective in helping automakers and other discrete manufacturers improve operations, and it has demonstrated to do the same for steel companies. In essence, Lean practices use continuous process improvement to reduce waste in production, with waste being any activity that does not add value from the customer’s perspective. Thus, it keeps resources focused on one of the most critical issues. Lean transformation involves the development of a true understanding of the customer’s value drivers, the rationalization of assets and capital utilization based on that customer view, and the benchmarking of processes against a steel company’s theoretical best performance. Lean transformation practices help reduce costs; they also drive higher levels of operational flexibility and responsiveness by reducing inventories and driving the philosophy of continuous improvement across the organization.

Step-change methodologyWhen a leading steel manufacturer wanted to turn around an unprofitable mill, it conducted a comprehensive cost-takeout program, based on a step-change methodology that addressed all operating areas.

The effort produced a number of results, including strategic sourcing improvements of 6 percent to 14 percent, depending on the sourcing category involved. Kaizen

events conducted as part of the initiative led to productivity improvements of 12 percent in the steel shop and up to 3 percent in coke oven operations, while analytics were used to help drive a 3 percent reduction in blast furnace fuel consumption. Overall, the step-change effort identified $180 million in annual savings, and achieved $45 million in annual savings within six months of the launch of the project.

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Lean transformationA global company had gained significant market success through its products, but felt that it was still vulnerable to changing markets and competition because it lacked process superiority. Employing Lean manufacturing practices, the company built a flexible operating system capable of weathering cyclical market demand while substantially improving productivity.

The effort bore fruit on several fronts. At a pilot facility, the company was able to reduce assembly time by 44 percent and achieve 25 percent improvement across throughput, productivity and available floor space. The company delivered these Lean capabilities to its operating teams, and ultimately achieved incremental margin increases ranging from 17 percent to 22 percent.

Process control and automation initiativesThese efforts help companies address bottlenecked or variable operations. They typically involve the tight alignment of all levels of process control and automation, from field instrumentation to business intelligence. To achieve this alignment, companies can enhance control loops through the use of process modeling and multivariate statistical process monitoring; assess key processes for improvement possibilities; conduct root-cause analyses to drive out process variability; and implement asset management tools for predictive maintenance, equipment monitoring and predictive intelligence. A key element of increasing the value from technology investments is to improve continuously the maturity of the process control and automation systems, along with the maturity of the staff in the manufacturing assets across the organization. To this end, these programs typically produce a long-term vision and strategy, as well as site-specific improvement roadmaps as part of the deliverables.

Reliability and maintenance initiativesHigher asset reliability and better maintenance can improve operating margins—not just by reducing expenses but by increasing revenue. One reason is that higher equipment availability often increases production capacity for a sold-out operation. Another more common scenario is improving profitability by enhancing the most profitable and productive units. Despite these potential benefits, reliability and maintenance often are overlooked levers for improving shareholder value because they are viewed as costs of doing business. Yet the return on invested capital made possible by these initiatives frequently is reflected in operating margins and capital efficiency. Key ratios that may be positively impacted by effectively managing assets include operational expenditure/revenue, net PPE/revenue and, to a lesser extent, working capital/revenue.

Kaizen events can play a role in programmatic change efforts, as well as in targeted interventions. For example, they can be used to identify and address waste or problems that impair profitability. In addition, they can help boost momentum and build credibility at key points in the programmatic effort. Too often, long-term projects can lag over time—but a series of Kaizens performed during the program can keep the project team energized while delivering quick wins that boost alignment and enthusiasm across the organization.

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Control-loop optimizationA large specialty steel production facility was looking for ways to improve its operations in order to increase speed and flexibility. To do so, it conducted a control-loop optimization assessment across its thermal treatment, forging and finishing operations.

With the completion of this targeted initiative, the company saw a reduction in gas consumption of between 4 and 9 percent in its various operations. It improved thermal process cycle time by more than three hours per week. Additional operational improvements and maintenance-time reductions increased throughput in bottlenecked operations.

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The enabling factors

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These various types of initiatives—both targeted and programmatic—can be effective in building execution excellence. But along with specific improvement efforts, steel companies need to have several fundamental enablers in place to drive—and sustain—execution excellence.

For example, having a sound performance-management process is important. Companies need to monitor constantly and adjust operations using metrics tied to both production outcomes and larger corporate objectives. A continuous improvement culture that encourages the identification of problems and their root causes is also vital. And, perhaps most important, the organization’s executive leadership must be involved, visibly supportive of and united in their backing of execution excellence—or improvement efforts will not be seen as a priority.

By employing a combination of targeted and programmatic initiatives, steel companies can instill the four pillars of execution excellence—simplicity, speed, focus and discipline—into the organization. By doing so, organizations can increase their investments in structural advantage, and use operational excellence as a competitive differentiator and a foundation for sustained high performance.

About the authorsRandy Steinmeyer is a certified Lean Six Sigma Master Black Belt in Management Consulting. He has over 33 years of experience driving process improvement across a variety of industries ranging from consumer goods to metals. He has been engaged in deploying Lean Six Sigma and implementing Operational Excellence in transactional and manufacturing processes for the last 15 years. During his career he has trained over 500 Black, Green and Yellow Belts and coached over 200 improvement projects. Randy is based near St. Louis, Missouri and can be reached at randy.steinmeyer@accenture.com.

Lee Laviolette is a managing director and the global lead for Accenture’s Operational Excellence group across the Energy, Chemicals, Metals and Mining industries. Based in Houston, Lee has over 30 years of experience as an industry executive and consultant. He has led major operations transformation programs across North America, Latin America, Europe, the Middle East and China. He can be reached at lee.laviolette@accenture.com.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.

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