Neil harriman tata steel - improve service with less inventory
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Neil harriman tata steel - improve service with less inventory
- 1. Tata Steel Europe – Long Products EU “How to increase Customer Service with less Inventory” 18th March 2015 / Neil Harriman
- 3. 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
- 4. 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
- 5. Key markets we serve
- 6. 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
- 7. One integrated customer driven company Operations hubs Our customers and markets Supply chain SupportFunctions Sales and Marketing (sector teams/customer services) Industry Strip & Long Construction Lifting & Excavating Energy & Power RailPackagingAutomotive Long EUStrip MLE Strip UK
- 8. 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
- 10. Voice of the Customer Customer Satisfaction Survey: TSE versus Best Competitor
- 11. 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
- 12. Focus on Volume
- 13. Longs EU – Product Variety Funnel
- 14. Longs EU – Physical Flow Map
- 15. You cannot shortcut the journey Understand Control Improve Innovation • Understanding enables Control • Control enables Improvement • Improvement enables Innovation
- 16. So do we need to change?
- 17. 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 inventory Our current challenge vs we want to improve on all three! So we have to change !!!
- 18. 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
- 19. OFID From this… To this… Perceived Lead Time Perceived Lead Time Perceived Lead Time Sales OrderProduction Order Sales Order Production Order Replenishment Customer Specific Forecasts Despatch from Stock De-coupling Point Perceived Lead Time Sales Order Production Order Replenishment Made to Stock Item Forecasts Despatch from Stock Sales OrderProduction Order Finishing on Semi Stock Replenishment Semi Dependent Forecasts based on end SKU forecasts Semi Production Order MT O MTFMTAFTO Right stock, in the Right place, at the Right time, to support the Right commercial offering
- 20. Order Fulfilment & Inventory Design
- 21. 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
- 22. 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)
- 23. 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
- 24. Order Fulfilment Strategies – In perspective Caster 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 MTOMTFMTAFTO Semi WIP FG
- 25. 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
- 26. 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
- 27. Scenario 1 Product Variety Low High Key Casters Mill Semis Finished 2 weeks 3 weeks Demand Frequency Forecast Accuracy Required Customer Lead Time 2 weeks Fulfillment Strategy Select Make To Available Make To Forecast Make To Order Finish To Order Benefits Risks
- 28. 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
- 29. 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
- 30. 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
- 31. How to implement OFID
- 32. How to Replenish De-coupled Inventory Blue – Inventory is too high, above designed level Green – Inventory is high, no problems Amber – Inventory is adequate, keep an eye on it Red – Inventory is low, replenishment needs expediting Black – Zero Inventory
- 34. You cannot shortcut the journey Understand Control Improve Innovation • Understanding enables Control • Control enables Improvement • Improvement enables Innovation
- 35. 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
- 36. 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
- 37. 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
- 38. Will better Customer Service enable improved Financial Results?
- 39. How are we doing? - 100 200 300 400 500 600 700 Long Products Hub Inventory Semi WIP Finished Ave 559kt Ave 472kt Ave 462kt Ave 424kt Ave 350ktAve 314kt Ave 248kt Ave 250kt Ave 225kt Ave 166kt Yr End 458kt Yr End 392kt Yr End 348kt Yr End 352kt Yr End 374kt Yr End 234kt Yr End 204kt Yr End 178kt Yr End 178kt Yr End 186kt
- 40. By repositioning ourselves in the market Current Customers and Products base Target Customers and Products Improved Service Offering ImprovedProfitability We know what our customers need We satisfy that need every time We’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
Editor's Notes
- What I intend to show today is a Case Study on how supply chain management theories are helping improve the service levels to Tata Steels customers at the same time as enabling significant reductions in our Inventory levels which frees up Cash. Covering:- Brief introduction to the Steel Industry and Tata Steel Long Products What’s wrong and what needs to change? We have several key projects aimed at improving customer service:- Order Promising Order Planning Transport Planning But today I will be focussing on Order Fulfilment & Inventory Design (OFID) Which customers and products are suitable, and which aren’t ?– we will be playing a game to help you understand this. How a “Make to Availability” fulfilment strategy can create a competitive advantage What data is required to design your inventory. How to prioritise the replenishment order within the manufacturing schedule? How to sustain change? Evidence that this actually works!!!
- We have been making steel in Scunthorpe for over 150 years, and for most of that time demand was greater than supply….and we made money!! – How much we could have made is a different question??? As historically there was a PUSH for volume, the perception was that if we control costs everything will be OK. The customer was effectively ignored. However since the recession hit, demand has dropped to 60-70% of 2007/8 levels, with significant over capacity in the market, meaning that just having a quality product is no longer a guarantee of profit. As we all know when profit margins are reduced, Cash becomes more important than ever. The burning platform is clear…we have to change to be more customer focussed and improve our service if we are to make money….indeed if we are to survive.
- Main Raw materials – Iron Ore, Coke and Sinter Heated in Blast Furnace to create liquid iron – cant turn off a BF once lit, have to keep producing – hence historical push for volume Liquid Iron added to scrap metal in BOS Vessel (Basic Oxygen Steelmaking), add Carbon, Si, Manganese, Phosphorus, Sulphur and dependant on required properties others e.g. Boron, Aluminium, Vanadium etc. Cast into Semis (Slab, Bloom or Billet) Reheated in Mills and rolled into our finished products – significant testing and further processing can be required.
- Sections & Plates products used in Construction market sector – Buildings and Ships Plates products used in Energy & Power market sector– Wind Towers Plates & Profiles products used in Lifting & Excavating equipment market sector Rail products used Rail market sector Rod products used in Bridges, Ropes, Tyres Shopping Trolley, Nuts & Bolts to name but a few.
- To achieve this mission statement our collective Mindset has to change from being Volume driven to Customer driven.
- New Operating Model Sales sell Operation make Supply Chain balances Demand with Supply and provides plans and schedules to fulfill orders.
- Top Down Leadership is there….
- 10
- Vast over capacity is holding prices down. Raw material prices are dropping but still more expensive than pre-recession. All steel manufacturers are feeling the squeeze. Survival of the fittest !!!
- Historically there was a PUSH for volume, the perception was that if we control costs everything will be OK. The customers needs and their level of demand was effectively ignored. Which led to very high stocks, and thus a lot of cash being tied up.
- Don’t jump to improve/Innovation!!! Make sure you understand what is needed and what we have to change. Make the changes and have the right measures and PDCA processes to control performance. Reduce the variability in performance and then improve.
- Looks like a lot of words!!! Don’t worry I have a better slide…………..
- A fulfilment method describes how we make sure that stock is available for a customer within the agreed order lead times. The methods can be split into 4 main categories: 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. 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
- Make to Available (MTA) Short lead times required, Frequent demand, good forecast accuracy and moderate number of products Benefits Protects market share by meeting lead time requirements Mechanism for smoothing production load Risks Deterioration of forecast accuracy will result in excess inventory, so we need a better way of managing replenishment
- Make to Order (MTO) Variable forecast accuracy, demand less frequent and production time is shorter than the customers’ lead time requirements Benefits Make only what is required by the customer Risks Competitors could offer shorter lead times Not able to respond to short term opportunities
- Finish to Order (FTO) Low number of Semi’s make, high finished product variety and required customer lead time are less than the total production time Benefits Inventory held at a lower value (semi’s) Low number of Semi’s Flexibility of what finished products can be made Risks Visibility of inventory Reliant on forecasts to ensure the right Semi’s are put into stock, again we need a better method of replenishment
- Make to Forecast (MTF) Single customer with short lead time requirements. High forecast accuracy Benefits Offer high levels of service to target customers Risks Reliant on forecast accuracy Inventory allocated to a single customer so not flexible
- Inputs: Need to understand what the customer values, as in what they are willing to pay for. Need to understand manufacturing lead times, and what influences that lead time. What are the real costs, including cost of holding stock. What products are Runners/repeaters/strangers Design: Where are the most appropriate decoupling points to provide differentiated lead times for MTO, FTO and MTA/MTF Dependant on data availability there are 3 main methods to design inventory, using differing degrees of mathematical science, but basically to set the initial target (aka Top of Green) you multiply the maximum consumption per week by the reliable replenishment time. Execution of Inventory: For MTA where offer is 100% availability, you must build stock to Top of Green inventory level before you launch the offer to market Use Dynamic Buffer Management to replenish stock, will explain on next slide Execution of Commercialisation: Agree with customers different prices for different lead times Charge them appropriately – NB don’t give premium service away for free!!
- Colours can be used to dynamically change inventory targets in line with changing demand 3 RRT’s in Green then reduce by 30% 3 RRT’s in Red then increase by 30% Colours can also be used to prioritise replenishment: Black 1st, Red 2nd, Amber next, then if all Black Red and Amber are satisfied make the Greens, NB don’t make anymore Blue!!!!
- Sorry IT suppliers but its about people and behaviour!!
- Good model for understanding how to sustain change . Be nice to be a Student A…. Student B and D – summed up by Einstein “definition of insanity – doing the same thing over and over, and expecting a different result. Student C - summed up by Mandella “doesn’t matter how many times you get knocked down, its how many times you get back up that matters!!”
- Ensure you have the right measures to drive the right behaviour And ensure you can identify and track root causes of failure – so that you can continuously improve !!!
- In 4 years we have taken 200kt out of our average inventory, while improving service. At £500/tonne, that’s £100m of cash, which is saving a significant amount of interest based on our cost of capital.
- Link between Customer Service and Financial Performance The key principles are founded in Goldratt’s Theory of Constraints (TOC), part of the Jamshedpur supply chain journey c.2007 / 8. 1 - There is value (revenue and margin) to be gained in the market from customer service improvement. In this case from increased reliability to meet the promised delivery dates, and from reducing the lead-time as perceived by the customer. 2 - There is value (cost) to be gained in operations from postponement or late customization of product, which means that we change the way we make what we sell, by producing generic product as far down the supply chain as possible before customizing it. 3 - We can manage our internal material flow (supply chains) differently to achieve items 1&2 whilst reducing the value of our steel stock holding (cash).
- This is not a flight of fancy, its based on fact. Differentiation through service will not only make us a survivor – it will make us a profitable, cash efficient force to be reckoned with. Final thought – you cannot grow a business by cutting costs alone, eventually costs are zero and you have no business. Only by being customer driven and improving service will you grow your business.