Network technology in the steel industry

Abstract

A commentary states that the speed and ease with which management information flows is enabling steel companies to break down old boundaries. A revolution in materials science and steel production technology is adding to efficiency and enabling steel makers to take more capital out of their processes, lowering the barriers to entry even more, and further accelerating competitive pressure. Network technology-supported product development, process knowledge, and more sophisticated metrics are speeding up improvements, which in turn are accelerating cash movement. Allegheny Ludlum has aggressively applied distributed network technology to become a world leader in specialty steel processing. Another North American integrated steel company has been able to reduce its base cost of $800 million by $70 million by redesigning its production, maintenance, procurement, order fulfillment, and energy management processes. Videoconferencing, electronic data interchange, and frame relay have been key to this initiative.

The steel industry is a recent convert to management strategies such as business process redesign and enterprise networking-strategies long viewed as standard practices in the service industries. However, converts to a new religion are often the most fanatical. Steel industry managers now talk about processes, not products. Supply and value chains are the points of entry to reduce inventories, compress production cycles, increase customer satisfaction and loyalty, strengthen relationships with key suppliers, and boost employee morale. All these create the efficiencies that leverage assets, increasing return on capital. The money, after all, is the fuel for continued growth and renewal.

The speed and ease with which management information flows is enabling steel companies to break down old boundaries. Their perspectives of their own supply chains now stretch horizontally outside company walls. The results are durable, seamless, and intimate relationships with suppliers and customers.

Inside steel companies, the abilities and speed that network technology confers requires a work force with greater latitude to act and, therefore, more skills and more understanding of its company's overall direction. In this article, I will explore some of the overall directions and issues facing steel companies, and then provide several specific examples of how network technology is providing greater workforce latitude.

It is harder than ever to smooth out the highest highs and lowest lows in the cycles of the steel industry. Lowering the break-even point is the mantra of steel industry executives everywhere. As the following examples illustrate, network technology is often used to reduce the break-even point.

The capital-intensive nature of the steel industry drives consolidation. It is invariably cheaper to buy capacity, and buy it in cheap labor markets if possible, than it is to build it. Investing to upgrade a mill in an underdeveloped country holds bottom-line appeal if you've taken out 75 percent of your labor costs by relocating. In addition, such mergers require complex coordination of the mills and the distribution channels serving customers across broader product lines.

A revolution in materials science and steel production technology is adding to efficiency, and enabling steel makers to take more capital out of their processes, lowering the barriers to entry even more, and further accelerating competitive pressure. Network technology-supported product development, process knowledge, and more sophisticated metrics are speeding up improvements, which in turn are accelerating cash movement.

As for customer service and customer management, steel companies are belatedly taking a page from the play books of nimble companies in more customer-oriented businesses. While big steel companies used to operate in a manufacturer's field of dreams ("If we make it, they will come."), they now actively partner with their customers and mass-customize productsstriving for customer management to equal their process management in order to improve the value chain at every step.

Allegheny Ludlum has aggressively applied distributed network technology to become a world leader in specialty steel processing. Its heavy research and development (R&D) program has accumulated more knowledge than the competition. Its distributed processing network helps the company to exploit this knowledge. All of its plants can make almost all of the products (none of the plants are profit centers). Thus, process improvements and product development created by the R&D center are easily taken to any of the plants and implemented. All manufacturing operations are measured closely.

Computer models run many of the processes. The intense use of computer models reduces the break-even point and reduces order delivery time.

Another North American integrated steel company has been able to reduce its base cost of $800 million by $70 million by redesigning its production, maintenance, procurement, order fulfillment, and energy management processes. Several network technologies have been key to this initiative.

Videoconferencing. Videoconferencing is being used to host meetings between corporate headquarters and hot mill sites as well as to facilitate meetings between mills. It also reduces costs by eliminating travel expenditures and lost work time.

Electronic data interchange (EDI). Electronic data interchange among vendors, suppliers, mills and customers is key to most of the process improvement initiatives. Several customers require EDI not only for orders, but also to be paid for the delivered product. EDI has enhanced inventory tracking, decreased the time for accounts receivable payments, and is providing leverage to bring new entities on line in less time.

Frame relay. Frame relay is used to manage remote computer systems. It supports a consolidated help desk, which is located off-site. This saves personnel costs, improves service through concentration of expertise in a single site, and decreases training costs. In addition, improved network management technology is being deployed to include support for subnets.

While the steel industry has been slower than some other industries to learn lessons from service industries such as banks, telephone companies, and retailers, it is now aggressively using network technology to improve business processes and return to competitive health in the global economy. F