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Tata Steel Europe – Long Products EUa
“How to increase Customer Service with less Inventory”
18th March 2015 / Neil Harriman
Tata Steel Europe
Steel is the sustainable material of choice
• Steel is the most recycled material in the world
• Steel is not consumed because once made, it will be used again and again
• Steel is a long-term investment that does not go to waste
• Steel is light, yet strong: an efficient material
• Steel is a basic building-block of modern society
• Steel enables sustainability
Steel is the only truly cradle-to-cradle recycled material
2nd largest steel producer in Europe
• High quality, complete product range of steel products and related services
• Manufacturing sites in the UK, the Netherlands, Germany, France and Belgium
• 17.9mtpa crude steel capacity
• Supplying to all demanding steel markets
• Sales offices and service centres in close to 50 countries
• Approximately 33,500 employees
Key markets we serve
Our Mission
• To be the long-term partner in our chosen markets by unlocking the potential in steel
• We will achieve this by:– Making our customers successful in their markets– Delivering operational excellence– Offering innovative products and services– Being responsible in everything we do
• We deliver this through a capable and committed workforce
One integrated customer driven company
Operations hubs
Our customers and markets
Supply chain
Support F
unctions
Sales and Marketing (sector teams/customer services)
IndustryStrip & Long
ConstructionLifting &
ExcavatingEnergy &
PowerRailPackagingAutomotive
Long EUStrip MLE Strip UK
Our commitment to our customers
Tata Steel is dedicated to understanding your business. We will support you to perform in your market and grow together for the future, by putting you first in everything we do.
Karl-Ulrich Köhler, CEO and MD Tata Steel Europe
So what’s wrong?
Voice of the Customer
Customer Satisfaction Survey: TSE versus Best Competitor
SSAB
• Fierce competition is all around us and is more aggressive every day
• Market conditions are changing at a pace never seen before, both on input costs and outsell prices
Our Competition
Focus on Volume
Longs EU – Product Variety Funnel
Longs EU – Physical Flow Map
You cannot shortcut the journey
Understand
Control
Improve
Innovation
• Understanding enables Control
• Control enables Improvement
• Improvement enables Innovation
So do we need to change?
The 3 goals of Supply Chain
Service
Cost Inventory
Improved service and reliability
to our customers is an important driver of our growth strategy: right service
for the right market segment
Increase margin by lower cost-to-serve, lower inventory holding cost, lowest cost routes
Our business has been tasked to
lower its working capital
of inventoryOur current challenge
vsvs
vs
we want to improve on all three!So we have to change !!!
Order Promising
Errrm ??…..We think we can roll it
in that week ??
From this…
To this… We can have “x” tonnes of “y” grade ready by “z” date !!
Promise What You Can; Deliver What You Promise
OFID
From this…
To this…Perceived Lead Time
Perceived Lead Time
Perceived Lead Time
Sales OrderProduction Order
Sales Order
Production OrderReplenishment
Customer Specific Forecasts
Despatch from Stock
De-coupling Point
Perceived Lead Time
Sales Order
Production OrderReplenishment
Made to Stock Item Forecasts
Despatch from Stock
Sales OrderProduction OrderFinishing on Semi Stock
Replenishment
Semi Dependent Forecasts based on end SKU forecasts
Semi Production Order
MT O
MT
FM
TAF
TO
Right stock, in the Right place, at the Right time, to support the Right commercial offering
Order Fulfilment & Inventory Design
Order Fulfilment & Inventory Design
• What is OFID?• Order Fulfilment and Inventory Design will allow the business to calculate
the correlation between customer service and stock
• What are the benefits from following an OFID approach?• OFID aims to deliver a through chain solution (from receiving an order
through to delivery of the end product), tailored to the needs of the customer in order to become a differentiated supplier. The methodology utilises real business data to assess how efficiently inventory could be used to
• Improve supply reliability
• Improve Lead time offering
• Support strategic stocking requirements
Order Fulfilment & Inventory Design (cont.)
• How does the process work?• The OFID (Order Fulfilment and Inventory Design) process will :-
• Define the supply network (internal supply routes and potential decoupling points) & inventory design (how much stock, of what type and where) necessary to deliver the required service offering
• Assess potential decoupling points within the chain to deliver service levels whilst retaining manufacturing efficiencies
• Utilise the 4 SCT fulfilment methods that have been developed
• What are the fulfilment methods?• A fulfilment method describes how we make sure that stock is available for a
customer within the agreed order timescales. The methods can be split into 4 categories:─ Make To Order (MTO)
─ Make To Forecast (MTF)
─ Make To Available (MTA)
─ Finish To Order (FTO)
4 Fulfilment methods
• Make To Order will be used when the customer has a required delivery date that is further away than the average time to make the product. This method requires no stock to be made prior to accepting the order. However we can only use this option when we have good and long order visibility.
• Make To Forecast requires stock to be manufactured in line with a detailed forecast from a customer. The stock is held in finished format and is held for use by the specified customer. The forecast needs to describe all items at the same level
• Make To Available will commonly be used to hold generic finished goods for a pool of customers. Here we will hold detailed finished stock units but the stock could go to a number of customers.
• Finish To Order is likely to be the most common method in the future. In this scenario we will typically hold slab stock ahead of the mill waiting for a sales order to be recruited and consume this stock. This allows a shorter time frame to complete the order as we only need consider the manufacturing time through the mill. The likelihood of excess stock being produced is also minimised as we are finishing products based on actual sales orders and not forecasts
Order Fulfilment Strategies – In perspectiveCaster Mill F/E
Perceived Lead Time
Perceived Lead Time
Perceived Lead Time
Sales OrderProduction Order
Sales Order
Production Order
Replenishment
Decoupled Customer Specific FG Stock
Despatch from Stock
De-coupling Point
Perceived Lead Time
Sales Order
Production Order
Replenishment
Decoupled Generic FG Stock
Despatch from Stock
Sales OrderProduction Order
Finishing on Semi Stock
Replenishment
Decoupled Semi
Semi Production Order
MT
OM
TF
MTA
FT
O
Semi WIP FG
Inventory
• Inventory features in all fulfilment modes and is required to deliver orders to customers
• The question is what is the optimum amount and where should we hold it to create advantage• Too little will result in lost sales and service problems• Too much will load unnecessary cost onto the business
• Factors influencing inventory• Lead times• Service requirements• Demand and Supply variability• Batch sizes
OFID Game
• Fulfilment Strategies• You will be given 4 scenarios• Information supplied
─ Product Variety
─ Production Times
─ Customer lead time requirements
─ Demand Frequency
─ Forecast Accuracy• Decide which fulfilment mode you would propose• Highlight benefits and risks associated with your selection
Scenario 1
Product Variety
Low High
Key
Casters Mill
Semis Finished
2 weeks 3 weeks
Demand Frequency
Forecast Accuracy
Required Customer Lead Time2 weeks
Fulfillment Strategy Select
Make To Available
Make To Forecast
Make To Order
Finish To Order
Benefits Risks
Scenario 2
Product Variety
Low High
Key
Demand Frequency
Forecast Accuracy
Required Customer Lead Time
Casters Mill
Semis Finished
2 weeks 3 weeks
6 weeks
Fulfillment Strategy Select
Make To Available
Make To Forecast
Make To Order
Finish To Order
Benefits Risks
Scenario 3
Product Variety
Low High
Key
Demand Frequency
Forecast Accuracy
Required Customer Lead Time
Casters Mill
Semis Finished
2 weeks 3 weeks
4 weeks
Fulfillment Strategy Select
Make To Available
Make To Forecast
Make To Order
Finish To Order
Benefits Risks
Scenario 4
Product Variety
Low High
Key Benefits Risks
Demand Frequency
Forecast Accuracy
Required Customer Lead Time
Casters Mill
Semis Finished
2 weeks 3 weeks
1 week
Fulfillment Strategy Select
Make To Available
Make To Forecast
Make To Order
Finish To Order
How to implement OFID
How to Replenish De-coupled Inventory
Blue – Inventory is too high, above designed levelGreen – Inventory is high, no problemsAmber – Inventory is adequate, keep an eye on itRed – Inventory is low, replenishment needs expeditingBlack – Zero Inventory
Sustainable Change
You cannot shortcut the journey
Understand
Control
Improve
Innovation
• Understanding enables Control
• Control enables Improvement
• Improvement enables Innovation
Change Management Focus
IT
Process
People
• People • Stakeholder Engagement• Mindset• Behaviour• Skills/Competencies
• ‘Business’ Processes
• ‘IT’ Systems
80%
18%
2%
Key Success Factor is:
TOP DOWN LEADERSHIP
4 Student Model
HAPPINESS SURPRISE
SORROW INDIFFERENT
Student A
Means implemented
Objectives achieved
Student B
Means not implemented
Objectives Achieved
Student C
Means implemented
Objectives not achieved
Student D
Means not implemented
Objectives not achieved
Performance metrics & PDCA
Fulfilment Strategy
DOTIF-P ROTIF-P Availability
MTO YES YES NO
FTO YES YES NO
MTA YES NO YES
MTF YES NO YES
Will better Customer Service enable improved Financial Results?
How are we doing?
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
-
100
200
300
400
500
600
700
Long Products Hub Inventory
Semi WIP Finished
Ave 559kt
Ave 472ktAve 462kt
Ave 424kt
Ave 350ktAve 314kt
Ave 248kt Ave 250ktAve 225kt
Ave 166kt
Yr End458kt
Yr End392kt Yr End
348kt Yr End352kt Yr End
374kt
Yr End234kt
Yr End204kt
Yr End178kt Yr End
178kt
Yr End186kt
By repositioning ourselves in the market
Current Customers and Products base
Target Customers and Products
Improved Service Offe
ring
•On-tim
e perform
ance
•Lead-tim
e perform
ance
Improved Service Offering
Imp
rove
d P
rofi
tab
ility
We know what our customers needWe satisfy that need every timeWe’re able to do this because:
We Promise what we can and we Deliver what we promise.
As a consequence we make money
The prize is approaching £100m EBITDA, and thus far we’ve released £100m of Cash
Longs Supply Chain Improvement Programme
• Order Fulfillment & Inventory Design• Order Promising• Order Planning• Shift Scheduling• Down-Stream Integration• MDM & Reporting
Service differentiation works !!
