Key takeaways from 2020 Steel Success strategy
Due to the pandemic, the 2020 Steel Success strategy conference took place online. As usual, it has been an insightful gathering, with Senior Executives (ranging from manufacturers, Research & Advisory organizations, Service providers to Software corporations) sharing their perspectives on the industry’s dynamics, priorities, as well as insights on how they are creating value within this ecosystem. This year, SAP sponsored the event. We were given the opportunity to share our industry strategy and participate to a panel with other technology actors. This article summarizes what I believe are the main priorities discussed and provides examples on how SAP has supported steel companies with those key topics.
In a nutshell, the steel industry transforms ore (or scrap) into metals that fit customer’s specifications (quality, format) to play an essential role in industries such as construction and automotive. This transformation process requires heavy assets that are expensive to acquire, operate and maintain, resulting in high production costs. The process is also energy intensive, as heating is essential to activities such as metals extraction from the ore (smelting), cleansing (calcining) and purification (refining).
Having played a critical role in the development of western cities and economies, the global steel demand growth will now essentially come from emerging markets such as ASEAN, MENA and India. From a supply side, this will lead to an overcapacity in some regions and create new businesses in growing markets.
Recently, the COVID came as a stress-test to this ancient industry, where the speed of innovation adoption has traditionally been lower than in other ENR industries. Indeed, amid this pandemic, companies had to adapt quickly to changing conditions such as dropping demand (and uncertainties in recovery speed) or disruption in global inbound/outbound logistics. They also had to continue operating plants with fewer resources, while always keeping an eye on employee safety and margin.
Thriving steel companies, have all shared that amongst the keys to resilience (and long-term success), Data plays a crucial role. Leveraged properly, Data can create significant value such as:
- Predicting demand with more accuracy
- Adjusting and optimizing business/supply/production planning to maximize margin
- Operating plants remotely
- Understanding and reducing energy consumption
- Predicting a risk of machine failure to optimize maintenance operations
- Identifying the best operations sequence to reduce scrap/improve yield/reduce emissions
The complexity lies in knowing which data to collect, how to contextualize it and create actionable insights that serve your priorities.
As a takeaway from this event, below are my top 5 industry priorities, along with successful use cases and thought-provoking questions:
- Sustainability is set to become as important as profitability – while the global demand for steel is expected to grow, a McKinsey study shows that 8% of the global emissions comes from this industry. Therefore, reducing the overall carbon intensity is critical. Several companies have already clearly expressed a timeline to become carbon neutral (e.g. Liberty Steel by 2030, SSAB by 2045, ArcelorMittal and Tata Steel by 2050). Sustainability is also a matter of reducing the energy/water intensity of operations. Amongst our customers, Severstal (a Russian vertical integrated steel company) has reduced its annual electricity loss of $ 12 million per year, through a consumption-monitoring tool, providing more clarity in the use of energy and an ability to identify saving potentials. See below video for more details on this story. My question to you :Throughout your value chain, where do you see opportunities to reduce emissions, energy/water consumptions?
- Businesses are shifting from volume to value – customers of the steel industry are also evolving. To build faster and lighter cars, higher buildings, the expectations towards steel manufacturers have changed in both product and interaction dimensions. Customers no longer focus only on costs, but also value personalization, transparency in production conditions (e.g. recycling, emissions) and an efficient communication. They are willing to pay extra money for that. This represents a fundamental change in the product mix that companies need to offer, with a clear orientation towards value added, higher margin steel. Enabling that, requires re-imagining the value chain, positioning the customer at the center. Ultimately, customers are expecting their suppliers to provide high standard of communication across channels, online product configuration, price transparency and real-time order monitoring. To serve better their customers and reduce unproductive lead time, ArcelorMittal has implemented SAP IBP in addition to an extensive usage of SAP ERP. Through a greater agility, the group has increased its ability to absorb changing demand (order cancellation, extra quantity) in production cycle while optimizing margins. See below video to learn more on this story. My question to you : What ideal value-creating customer journey would you like to offer?
- Enable smart manufacturing – manufacturing operations are becoming more digital, connected, autonomous leading to higher efficiency, quality, and productivity. Minimizing manual intervention at the shop floor level will also provide more clarity on the drivers of cost in production. Ultimately, the usage of augmented intelligence (such as AI/ML, predictive analytics) can enable insight-based recommendations to improve yield, reduce scrap, and reach sustainability ambitions. As an example, leveraging SAP’s advanced data mining tools, ETEM (a leading European aluminum producer) was able to improve extrusion efficiency through data driven recommendations. My question to you : How would you rate your ability and speed of adjustment in production line amid changing market conditions?
- Growth through new business models – to remain competitive, having greater control over production cost isn’t enough. Companies require operational agility to innovate and rapidly launch profitable products and services. This ability to pivot and create a greater value for the end customer, can require structural changes in operation model (e.g. activity consolidation to share costs, open collaboration, dynamic pricing for spot trading, switching from B2B to B2B2C model, merging part of the production line with end customers). In Russia, to provide a greater transparency on the origin of metal products and fight against fraud, a group of local producers have joined forces and created a unified industry registry of certificates using SAP blockchain platform. My question to you : Which disruption are you willing to make to generate more value to your customers?
- Attract and retain talents that will enable your growth – the steel industry will soon face a resource shortage. The workforce operating in the production line entered the labor market at a time where manual and difficult jobs were common, and usually spent their entire career on the shop floor. To attract and retain talents, Steel companies must upgrade their HR practices, provide a stimulating technology-driven working environment and inspire with a purpose-driven strategy. Companies like Umicore (a global materials technology group) have experienced a higher attractiveness of their organization, and employee engagement with SAP solutions. Mark Dolfyn, HR development Director has stated that “SAP SuccessFactors solutions are essential enablers of growth for Umicore, helping us drive HR performance, meet the personal aspirations of our people, and reach our corporate ambitions”. My question to you : Which changes are you willing to make to rejuvenate your workforce and nurture a new mindset that will support your sustainable growth?
Every day, steel companies generate a large amount and variety of data. Only a small fraction of the data available is currently used. Great opportunities rely on the ability to unlock greater value out of available data, that will ultimately impact what Christian Klein (SAP’s CEO) has called ‘the top, bottom and green line’.
I welcome you to share your feedback and possible answers to the questions raised in the below comment section. To learn more on how SAP creates value in the Metals industry, visit SAP Mill and Mining Community Page.