Accenture Outperforming Competition Execution Excellence Steel

8/22/2019 Accenture Outperforming Competition Execution Excellence Steel

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Outperforming thecompetition throughexecution excellence inthe steel industry


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Operational excellence can set anorganization apart from the competition. Butin todays environment, steel companies oftenfind it difficult to achieve this excellence anduse it to gain a distinct advantage.

In the steel industry, operationalexcellence is becoming more and moreimportant. Ongoing consolidation andglobalization make greater efficiencya must. Increasingly sophisticatedcustomers are raising the bar for bothquality and service. High volatility andpricing fluctuations in both raw materialsand steel are making agility vital. Growingdemand for exotic grades, small batchesand just-in-time delivery are creating

challenges in terms of both efficiencyand profitability. And stricter regulationsare making safe, environmentally soundoperations more important than ever. Allthese market forces are driving up costsat a time when companies are tryingto reduce costs in order to maintainprofitability (see Figure 1).

To meet these challenges, many steelcompanies have invested in creatingstructural advantagein enhancingplants, equipment and technologyto increase production, throughputand customer responsiveness whilealso hopefully reducing costs. Theseinvestments have often been significant.But in many cases, steel companies havenot seen the return on investments thatthey have expectedor the operational

excellence they need.

The reasons for this shortfall are complex,but often companies have not takenthe rigorous steps needed to make surethey can fully leverage the structuralinvestments. That is, they have not builtthe ability to execute well on top of their

structural platformand so efforts todrive operational excellence fall short.

In essence, operational excellence needsto be based on both structural advantageand execution excellenceand steelcompanies are often missing this secondfactor. Execution excellence is key tomeeting todays operational challengesand getting the most out of structuralinvestmentsand steel companies cantake advantage of a number of techniquesto build it systematically. Experience hasshown that by doing so, they can achieveshort- and long-term benefits, anddevelop the operational excellence thatwill help outperform competitors and letthem move ahead on the journey to beinga high-performance business.

Crude steel production (000 MT) Revenue per metric ton (USD)

Capacity utilization (%) EBITDA margin per shipped MT (%)

1980 1985 1990 1995 2000 2005 2010

1,600

1,400

1,200

1,000

800

600

44%

18%

12%

8%

7%

13%

All Other

NA

CIS

EU

Other Asia

China

75%

80%

85%

90%

95%

100%

1009080706050403020100

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

06050095 10090807

0%

5%

10%

15%

20%

25%

95 10090807060500

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.


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The four pillars ofexecution excellence

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Achieving execution excellence caninvolve a variety of initiatives, and theright improvements will depend on acompanys specific situation. However,Accenture has found that executionexcellence relies on four fundamentalpillars, or principles, that can be used toguide efforts. These pillars are:

Simplicity. Many of the challengesfacing the metals industry bringgreater complexity to processes. Thiscomplexity strangles the organization,driving up costs and delays. Simplicityis achieved by reducing duplication,rework and low customer value-addedwork; clarifying decision making;and standardizing and harmonizingprocesses.

Speed. To keep up with changingdemand and customer requirements,steel companies need to accelerate the

movement of value-added information,materials and/or products throughmanufacturing processes. The objective:Reduce cycle times, increase flexibility,shorten correction loops and reducedelays across the enterprise.

Focus. This means verifying thatlimited resources are being used to theappropriate advantage, and strategicand structural issues are given priority.

It also requires the targeted value ofan initiative to be clearly defined, witha bias toward taking action, ratherthan undue deliberation, in pursuingimprovements. A key element in thisarea is the use of quick-win initiativesthat produce significant results in arelatively short time and involve low-risk, low-cost activities. Such initiatives

demonstrate to the entire organizationthat improvements can sometimes bemade in small, rapid steps that do notrequire exhaustive analysishelping tobuild a bias toward action.

Discipline. Companies can take adisciplined approach to improvingexecution by building the concept ofmanaging for performance into theorganization. The organization should bealigned toward delivering economic profit;incorporate fact-based managementinto daily operations; and weave the

continuous process of measuring,reporting and improving into everycore processall of which help build anexecution-oriented culture. Discipline alsoentails rigorous standardization of workprocesses, executed by individuals withconsistent skills.

By emphasizing these four pillars,companies have seen benefits rangingfrom higher quality and reliability to

increased flexibility, improved customersatisfaction and reduced operating costs.For example, in Accentures experience,execution excellence initiatives havehelped companies:

Reducedefects/reworkbyupto75percent.

Reduceorganization-wideinventoryby

up to 30 percent.Cutoperatingcostsbyupto25percent

Increaseproductivitybyupto35percent.

Improveleadtimesbyupto50percent.

Reduceprocessvariabilitybyupto90percent.

Reducecustomercomplaintsbyupto25 percent.

In pursuing execution excellence,

companies can undertake many differentperformance improvement initiatives thatare of one of two typeseither targetedinterventions or programmatic changes.These two types of change initiativescomplement one another, and togetherthey help achieve both rapid and long-term results (see Figure 2).

Go fast

Benefi

t

Time3 Weeks 9 Months

47% increase in slabpile quality

11% reduction in

Vacuum Degasser

cycle time

Site-wide throughputincrease of 4% and

cost reduction of 6%5-9% reduction infuel cost across

multiple furnaces

Targeted intervention Programmatic change

Mill-wide profitabilityboost of $180M/yr or9% 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 withthe investment.


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The targetedintervention approach


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

For example, targeted efforts might beused when companies want to reduceemissions in coke ovens, improvetemperature control in steelmaking,increase alloy additions, debottleneck aprocessing step or reduce quality issuesin finishing operations. Targeted changeefforts aim to deliver rapid improvements,but they do so by building capabilitiesthat will continue to provide benefits overthe longer term.

Typical targeted initiatives includeautomation and process controlinterventions. These use sophisticatedcontrol-loop assessment and tuning toolsto drive variation out of processes, whichin turn drives reductions in costs andincreases in productivity.

On another front, marginal economicsmethodologies use detailed analytics ofcustomer/pricing data along with shopfloor diagnostics to enhance pricing,cost to serve, product/customer mix andgo-to-market processes. When combined,

these help with short-term optimization ofmanufacturing and supply chain activities.

A key technique for targeted change isthe Kaizen event. Led by a Lean Six SigmaMaster Black Belt or Kaizen leader, a

Kaizen is a rigorous process that bringstogether teams of operational people toquickly develop and implement solutionsthat address process problems, or reducewaste and inefficiencies. These eventsare designed to produce rapid resultsand are typically completed in just a fewweeks. By assembling and empowering ateam of people who have a full, hands-onunderstanding of the process in question,the Kaizen approach leads to solutionsthat are practical and realistic. Whilegenerating value in the short term, it also

helps instill a continuous-improvementmindset in the organization.

Kaizens can be used for problem solvingin two distinct ways. Discovery Kaizenscan be used when the root causes of abroad problem are not clear, drawingon the knowledge and experience ofoperational teams to uncover thosecauses. The Discovery Kaizen focuses onfinding specific areas for improvement,along with quick-win solutions to manyissues. In contrast, Rapid Improvement

Kaizens are applied in situations where anoperational problem is better understoodand has a narrower scope; these typesof Kaizen events typically are used whenthe company wants to find a solutionquickly. In just a few weeks, a solution

can be identified and many, if not all, thenecessary changes made to correct root-cause problems.

A Kaizen event helps overcome resistanceto change in the organization. Resistancecan be difficult to address and evenexperienced change agents can be worndown by it. With the Kaizen approach,the change in question has the buy-inand support of the people who operatethe process, because they are the forcebehind the change. Thus, a Kaizen canoften break the cycle of resistanceand indoing so, the event will pave the way forfurther improvements beyond the specificproblem being addressed.

Experience has shown the Kaizenmethodology can be applied verysuccessfully to contractor and outagemanagement. By examining the reasonsfor contractor usage, the root causes ofthe key drivers can be addressed, whichcan achieve a 10 to 15 percent reductionin overall contractor costs.

Due to clear cost and risk considerations,shutdown planning and execution is animportant area of investment to drivevalue from execution excellence(see Figure 3).

Rapid improvement Kaizen

A large steel maker was facing increasingdemand for low carbon steel, which wasbeginning to interfere with the ability tomake customer shipments on time. Usinga Rapid Improvement Kaizen event, thecompany:

Clearlyidentifiedbottlenecks,delaysand non-value-added activities in thecurrent process.

Pinpointedroot-causedriversofprocesscycle time variability.

Identifiedissuesthatwerebeingcausedby operating procedures at upstreamand downstream processing units.

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

address current and near-term customerdemand. In addition, the effort produceda corresponding 11 percent increasein caster speed to keep pace with theimprovements in the companys degasseroperation.


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A recent project Accenture supported inthis area set out to determine importantsuccess factors for repeatable shutdownand maintenance management.

Accentures work with the client startedwith the initiation of a workshop ofmulti-disciplined participants to developa shutdown business process model,with explicit benchmark measures,objectives and targets for improvement.Managing the shutdown processrequired establishing a milestone planfor all preparation activities (from18 months pre-shutdown throughthe event and post-shutdown), andcreating due dates and responsibilitiesfor specific tasks and deliverablesacross 11 performance dimensions.

Scope challenge/optimization workshopswere conducted 12 months prior to themajor shutdown to review methodicallythe scope, scheduling, risk and associatedcosts for execution activities. The resultwas a quality shutdown playbook,which set out detailed procedures forcritical and non-critical path tasks/workpackages, operational shifts, manpower,safety, and equipment covering the fullcycle of pre-shutdown activities (e.g.,scaffold erection, pre-fabrications,materials delivery, etc.). The playbook alsoincluded information on decommissioningand decontamination, maintenance,

projects, inspection, commissioning, andpost-shutdown work.

The results were profound. The workshopsfacilitated internal alignment and

Outage readinessreview #2

-3 months

ShutdownExecution

Outage premiseworkshop stetting

Outage strategyworkshop

Outage businessprocess workshop

Post-outagereview

Field support

Scheduleoptimizationworkshop

Decontaminationworkshop

Outage planningworkshop

Outage readinessreview #1

Scope challenge/optimization

Quality workshop

+3 months

-20 months

-18 months

-15 months

-12 months

-9 months

-6 months

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

through each cycle.

Discovery Kaizen

A large steel producer was struggling toaddress customer demand in a continuouscasting operation. In order to identifyroot-cause issues, it conducted aDiscovery Kaizen with a cross-functionalteam from across the steel shop. ThisKaizen used Lean Six Sigma tools to findthe drivers of problems, and then todevelop, quantify and prioritize solutions.Changes encompassed people, processesand technology, and included better

communication at key process points,reduction of redundant testing, improvedpreventive maintenance, automation ofdata input, and reassignment of personnelto expand supervisory coverage.

The effort identified $1.4 million inquick-win yield improvements thatwould cost nothing to implement.Another$2.9millioninidentifiedannual yield improvements would

carry implementation costs of just$156,000. And $2.6 million in anotherset of potential yield improvementswould require a total investment ofapproximately $1.5 million. Overall, theDiscovery Kaizenwhich took only threeweeks to completeidentified a total of$7.1millioninyieldimprovements.

common understanding of activities,performance metrics, resourcing, budgets,and the scope of the shutdown into asingle overview document. Streamliningof critical-path activities via Leanthinkingand partly from an appreciationof the value of a project control systemtogether with investment in the skillsfor shutdown schedulingreduced the

shutdown time by 4.5 days. Better control

of shutdown scope and schedulingsaved 23 percent in cost. Specifically,significant improvements were made withrespect to external third parties in theareas of safety, reduction of rework, andlower costs by using contractors moreeffectively in a range of contract typeswith an overall savings of 15 percent onexternal spend alone.


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The programmaticchange approach


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Programmaticchangeaddressesthebiggerpicture, taking on systemic issues with broad-based improvements across an operating siteor network of assets. These initiatives aimto deliver solutions that are able to address

both current market conditions and futurestrategic objectives.

A programmatic change effort mightbe appropriate when a company istrying to improve a finishing operationsoverall profitability; when an integratedmill needs to reduce defect rates andraise on-time delivery performance;when an unreliable operation needsa comprehensive improvement in

maintenance and reliability performance;or when a complex mill wants to increaseflexibility so that it can adjust operationsto handle order fluctuations, withouteroding margins.

In general, programmatic change is acomprehensive attack on fundamentalbarriers that are impairing execution.There are several programmaticapproaches that steel companies can use:

Step-change methodologyThis is a structured and facilitated processfor stimulating, developing, evaluatingand implementing ideas for improvingprofitability on an ongoing basis.

The process begins with the capture ofnew, innovative ideas, which are trackedin a centralized database. This databasemakes it easy to share and transfer ideasacross teams and facilities, promotescross-functional cooperation, and letsthe organization document progress whenideas are implemented. Ideas are vetted

and prioritized based on a fact-basedanalysis of potential savings and risk-reward criteria. As improvementsare implemented, scorecards and reportskeep team members up to date on theproject status.

Step-change efforts can help steelcompanies achieve significant results.For example, in actual programswith Accenture clients, the approachhas led to cash cost reductions ofup to 22 percent across mill andconverting operations, up to four-pointimprovements in return on investedcapital, and significant improvementsin overall equipment effectivenessmetrics and employee satisfaction.

Lean transformationLean manufacturing has been effectivein helping automakers and other discretemanufacturers improve operations, and ithas demonstrated to do the same for steecompanies. In essence, Lean practicesuse continuous process improvement to

reduce waste in production, with wastebeing any activity that does not add valuefrom the customers perspective. Thus,it keeps resources focused on one of themost critical issues. Lean transformationinvolves the development of a trueunderstanding of the customers valuedrivers, the rationalization of assets andcapital utilization based on that customerview, and the benchmarking of processesagainst a steel companys theoreticalbest performance. Lean transformationpractices help reduce costs; they

also drive higher levels of operationalflexibility and responsiveness by reducinginventories and driving the philosophyof continuous improvement acrossthe organization.

Step-change methodology

When a leading steel manufacturerwanted to turn around an unprofitablemill, it conducted a comprehensivecost-takeout program, based on a step-change methodology that addressed alloperating areas.

The effort produced a number of results,including strategic sourcing improvementsof 6 percent to 14 percent, depending onthe sourcing category involved. Kaizenevents conducted as part of the initiative

led to productivity improvements of 12percent in the steel shop and up to 3percent in coke oven operations, whileanalytics were used to help drive a 3percent reduction in blast furnace fuelconsumption. Overall, the step-changeeffort identified $180 million in annualsavings, and achieved $45 million inannual savings within six months of thelaunch of the project.


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Lean transformation

A global company had gained significantmarket success through its products,but felt that it was still vulnerable tochanging markets and competitionbecause it lacked process superiority.Employing Lean manufacturing practices,the company built a flexible operatingsystem capable of weathering cyclicalmarket demand while substantiallyimproving productivity.

The effort bore fruit on several fronts. Ata pilot facility, the company was able toreduce assembly time by 44 percent andachieve 25 percent improvement acrossthroughput, productivity and availablefloor space. The company delivered theseLean capabilities to its operating teams,and ultimately achieved incrementalmarginincreasesrangingfrom17percentto 22 percent.

Processcontrolandautomation initiativesThese efforts help companies addressbottlenecked or variable operations. Theytypically involve the tight alignmentof all levels of process control andautomation, from field instrumentationto business intelligence. To achieve this

alignment, companies can enhancecontrol loops through the use ofprocess modeling and multivariatestatistical process monitoring; assess keyprocesses for improvement possibilities;conduct root-cause analyses to driveout process variability; and implementasset management tools for predictivemaintenance, equipment monitoring andpredictive intelligence. A key element ofincreasing the value from technologyinvestments is to improve continuouslythe maturity of the process control and

automation systems, along with thematurity of the staff in the manufacturingassets across the organization. To thisend, these programs typically produce along-term vision and strategy, as well assite-specific improvement roadmaps aspart of the deliverables.

Reliability and maintenanceinitiativesHigher asset reliability and bettermaintenance can improve operatingmarginsnot just by reducing expensesbut by increasing revenue. One reasonis that higher equipment availabilityoften increases production capacity

for a sold-out operation. Another morecommon scenario is improving profitabilityby enhancing the most profitable andproductive units. Despite these potentialbenefits, reliability and maintenanceoften are overlooked levers for improvingshareholder value because they are viewedas costs of doing business. Yet the returnon invested capital made possible bythese initiatives frequently is reflected inoperating margins and capital efficiency.Key ratios that may be positively impactedby effectively managing assets include

operationalexpenditure/revenue,netPPE/revenue and, to a lesser extent, workingcapital/revenue.

Kaizen events can play a role inprogrammatic change efforts, as well asin targeted interventions. For example,they can be used to identify andaddress waste or problems that impairprofitability. In addition, they can helpboost momentum and build credibility atkey points in the programmatic effort.Too often, long-term projects can lag over

timebut a series of Kaizens performedduring the program can keep the projectteam energized while delivering quickwins that boost alignment and enthusiasmacross the organization.


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Control-loop optimization

A large specialty steel production facilitywas looking for ways to improve itsoperations in order to increase speedand flexibility. To do so, it conducted acontrol-loop optimization assessmentacross its thermal treatment, forging andfinishing operations.

With the completion of this targetedinitiative, the company saw a reductionin gas consumption of between 4 and9percentinitsvariousoperations.Itimproved thermal process cycle timeby more than three hours per week.Additional operational improvements andmaintenance-time reductions increasedthroughput in bottlenecked operations.


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The enabling factors


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These various types of initiativesbothtargeted and programmaticcan be effectivein building execution excellence. But alongwith specific improvement efforts, steelcompanies need to have several fundamental

enablers in place to driveand sustainexecution excellence.

For example, having a soundperformance-management process isimportant. Companies need to monitorconstantly and adjust operationsusing metrics tied to both productionoutcomes and larger corporate objectives.A continuous improvement culturethat encourages the identification ofproblems and their root causes is alsovital. And, perhaps most important,the organizations executive leadershipmust be involved, visibly supportive ofand united in their backing of executionexcellenceor improvement efforts willnot be seen as a priority.

By employing a combination of targetedand programmatic initiatives, steelcompanies can instill the four pillarsof execution excellencesimplicity,speed, focus and disciplineinto theorganization. By doing so, organizationscan increase their investmentsin structural advantage, and useoperational excellence as a competitivedifferentiator and a foundation forsustained high performance.


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About the authorsRandy Steinmeyer is a certified Lean SixSigma Master Black Belt in ManagementConsulting. He has over 33 years ofexperience driving process improvementacross a variety of industries ranging fromconsumer goods to metals. He has beenengaged in deploying Lean Six Sigma andimplementing Operational Excellence in

transactional and manufacturing processesfor the last 15 years. During his careerhe has trained over 500 Black, Greenand Yellow Belts and coached over 200improvement projects. Randy is based nearSt. Louis, Missouri and can be reached [email protected].

Lee Laviolette is a managing director andthe global lead for Accentures OperationalExcellence group across the Energy,Chemicals, Metals and Mining industries.Based in Houston, Lee has over 30 yearsof experience as an industry executive andconsultant. He has led major operationstransformation programs across NorthAmerica, Latin America, Europe, the MiddleEast and China. He can be reached [email protected].

About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company, with approximately261,000 people serving clients in morethan 120 countries. Combining unparalleledexperience, comprehensive capabilitiesacross all industries and business functions,and extensive research on the worlds

most successful companies, Accenturecollaborates with clients to help thembecome high-performance businesses andgovernments. The company generatednetrevenuesofUS$27.9billionforthefiscal year ended Aug. 31, 2012. Itshome page is www.accenture.com.

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Accenture Outperforming Competition Execution Excellence Steel